The Hindu Business Line : Banks step up monitoring of loan portfolios to avoid delinquencies

Mumbai, Aug. 31 Anticipating repayment problems, as a result of rising interest rates and high input costs, banks are increasingly becoming more careful about their lending and closely monitoring their loan portfolios.

After following stringent ‘Know Your Customer’ norms for their retail customers, banks are now tightening the lending norms for their corporate clients as well.

Banks are now asking for more collateral for the loans and also constantly reviewing the repayment schedules. Such steps would help prevent loan accounts from turning into non-performing assets (NPAs), said bankers.

Mr M.V. Nair, Chairman and Managing Director, Union Bank of India, said, “When input cost and interest cost go up, small industries can come under strain. Depending on their ability they may either pass on the cost to the customer or absorb the cost. Or they may have to sacrifice profits. In such a situation, delinquencies could go up.”

The bank has strengthened its monitoring mechanism and has put in place alerts at various levels, which will help capture the account before it moves into an NPA.

Loan to value ratio

A general manager in charge of credit with another leading public sector bank said that banks are now constantly monitoring the ‘loan to value ratio’ (LVR).

“While the going was good, nobody bothered about the LVR much. But now we constantly check it. Due to the competition in the last couple of years, credit standards had taken a backseat. But now quality appraisals have assumed more importance,” he said.

Loan to value ratio is the proportion of money that is given as loan to the value of the property that is kept as collateral with the bank.

As a precaution, banks are now asking for higher collateral for the loans.

While earlier they lent 85-90 per cent of the value of collateral or security, now they are lending 75-80 per cent, the official said.

However, despite the hike in interest rates, demand for credit in sectors such as infrastructure, steel, power and real estate is still strong, said bank officials.

“Several companies are setting up captive power generation plants to cut down on electricity costs,” said a senior bank official.

According to the Reserve Bank of India’s latest Weekly Statistical Supplement, bank credit has seen a growth of 25.9 per cent in the period April 1 to August 15, as against a growth of 23.1 per cent in the same period last year.

More Stories on : Credit Market | Non-Performing Assets

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
United Bank bags national award

Bonds rally on liquidity inflow

Banks step up monitoring of loan portfolios to avoid delinquencies

Dena Bank looks to tie up with SBI for boosting credit card biz

Union Bank reduces FCNR, NRE term deposit rates

Lowers FCNR deposit rates