The Hindu Business Line : Slowdown in loan disbursals as banks turn more cautious

Mumbai, Oct. 10 The shortage of funds in the banking system has led to a slowdown in loan disbursals by banks, both retail and corporate. Banks are being more selective in their disbursals and are holding back fund commitment to corporate customers. In some cases such as in loans to sensitive sectors, banks are also asking for higher margins and more security against the loans, said bankers.

A senior official from State Bank of India said the bank is monitoring loans for big projects more carefully, especially real estate loans, for which the bank is asking for higher margins and greater security. “We are being careful about big projects and are examining various parameters, because we are dealing with a scarce commodity,” he said, referring to the cash crunch.

Retail loans such as housing loans and car loans and loans to SME and agri sectors have not seen a slowdown, he added.

Mr R.S. Reddy, Chairman and Managing Director, Andhra Bank, said that the liquidity crunch in the financial markets is driving banks to actually hold fund commitments to corporate customers.

“With inter-bank call rates going as high as 22 per cent (for temporary liquidity) how can we lend at 15 per cent? So, big corporate customers are being told to wait,” he said.

Mr Romesh Sobti, Managing Director and CEO, IndusInd Bank, also said that banks have stopped lending. “Lending is down to a trickle in whatever form it is,” he said.

While there is no let-up in applications for funding projects or working capital from the corporates, actual disbursal has slowed down due to lack of liquidity from the banks’ side, said Ms Renu Challu, Managing Director, State Bank of Hyderabad.

“There is no halting of lending, but it has been put on hold in some cases. And, till recently, RBI actually wanted this to tame inflation. However, now with the inflation coming down and RBI sending signals about increasing liquidity, the situation should improve,” she said.

According to Mr S.K. Goel, Chairman and Managing Director, UCO Bank, while banks have not stopped lending, people have started withdrawing deposits more out of panic.

Short-term funds costly

Getting short-term money is a costly affair for banks with the cost of funds moving up significantly, Mr K.R. Kamath, Chairman and Managing Director, Allahabad Bank, pointed out. “Banks are facing problem raising short-term funds, therefore, there has been some slowdown in credit disbursements on a short-term basis,” he said.

Mr V.K. Dhingra, Executive Director, UCO Bank, said that banks were facing tight liquidity conditions and this has affected their lending operations. “There has been some slowdown in short-term lending operations of banks,” he observed.

Mr T.M. Bhasin, Executive Director, United Bank of India, said, “There is a demand from the corporate side, liquidity was the only constraint. The present cut in CRR will hopefully enable banks to extend short- term advances.”

Corporate borrowing

On the corporate borrowing front, companies have put on hold their decision to raise funds, according to Mr Deepak Khaitan, Chairman, McNally Bharat Engineering Company Ltd. “The CRR cut will help infuse some money into the system, however, there seems to be little improvement in the interest rate situation which continues to remain high. We are therefore cutting down our borrowings and repaying our debt in order to reduce the burden,” he said.

Loans against shares

With regard to loans against shares, many banks are asking for higher margins or selling shares, said bankers.

Mr Sobti said, “There are no broker defaults, SEBI has stated this. However, there are small cases of defaults when margin calls are not met. In such cases, shares are being sold by the banks,” he said.

“Due to RBI’s strict restrictions and timely advice on exposure to capital market and commercial real estate, there have been no broker defaults so far. We have been charging slightly higher on loans due to the liquidity crunch,” Mr Goel said.

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