Corporate Bottomlines To Fall As Banks Up Lending Rates

The package of measures announced by the Reserve Bank of India (RBI) to stem up the rupee fall is likely to hurt profits in the corporate sector in the fourth quarter of the current year. Most banks, led by the State Bank of India, have announced increases in their prime lending rates by 100 basis points. The IDBI , too, has hiked its term lending rate by 100 basis points.

The interest burden of 2000 corporates with an accumulated bank borrowing of Rs 71,592 crore till end-March 1997 is likely to go up by Rs 716 crore if they continued with the bank loans. The interest burden on the corporate sector is based on the assumption that bank borrowing made by these corporates is on the basis of floating rates. So any increase or cut in bank rates is likely to affect the borrowers directly. The hike in PLR rates by all banks assumed to be 100 basis points i.e. one per cent.Top 100 borrowers which account for 61.73 per cent of the borrowings or Rs 44,199 would be burdened by Rs 442 crore.

IOC with bank borrowing of Rs 9,927 crore will have to pay Rs 99.27 crore on such increases. As the company made net profit of Rs 904.22 crore during the first half of 1997-98, the impact on the profit will not be much. However, the growth rate is likely to go down considerably.

The rise in PLR on SAIL will be around Rs 40.08 crore. SAILs bank borrowing for 1996-97 stood at Rs 4,008 crore. The company with depressed steel markets had registered a net profit of Rs 48.53 crore in the first half of 1997-98. An additional burden is likely to hurt the companys profitability in the coming year. Essar Steel will witnessed an additional interest burden of Rs 15.41 crore if they continued with the bank borrowing of Rs 1,541 crore. Telco Rs 14.08 crore, Reliance Industries Rs 13.76 crore, MRPL Rs 10.78 crore, Larsen & Toubro Rs 9.86 crore, HPCL Rs 8.71 crore, ONGC Rs 7.35 crore and Century Textiles Rs 7.05 crore are the other companies whose interest burden will rise.