Amidst low credit demand and corporates stepping up borrowings from the market, banks are tweaking interest rates on loans to India Inc.

On a selective basis, depending on the tenure or security of the loan, banks, especially in the private sector, are tweaking rates to suit the demands of corporates.

“Yes, there is some amount of decrease that is beginning to happen. We need to see policy rates come down before any significant reduction can be seen. Incremental lending has become competitive, reflective of probably a bit of a decline in interest rates,” said Jaideep Iyer, Senior President – Financial Markets at YES Bank.

Corporates have been going to the market by borrowing through commercial papers and other corporate bonds for the past three-four months.

Paresh Sukthankar, Deputy Managing Director of HDFC Bank, in a post results conference call, said: “Corporate lending rates have seen some pressure. This is because competition has increased in the corporate segment. Also, companies have moved to borrowing more through commercial papers. Therefore, banks have to effectively make money available at a slightly lower cost.”

Retail focus

With weaker credit demand on the corporate front, some banks are focusing on retail growth. However, not all banks are in favour of lowering interest rates.

A Bank of India official said, “With less credit demand, it is a dynamic situation and the decision to reduce interest rates will be definitely looked into. Lending has been weak for fresh projects as there is no fresh capex expansion by corporates. So, lowering may not make much sense,” the official said. Central Bank of India’s Executive Director RK Goyal added, “So far, we have not reduced our lending rates to any of our corporates… Good corporates are not coming to banks, and we cannot reduce our rates below the base rate, which is 10.25 per cent.

“Some corporates are borrowing from the markets at about 9.5 per cent.”

He added that the bank’s current corporate lending exposure has fallen to 52 per cent from 60 per cent a year ago, while the non-corporate credit portfolio has grown to 48 per cent from 40 per cent.

However, the slowing pace in corporate lending has led to a decline in overall credit growth in the system. Loan growth in the banking industry slipped to 9.7 per cent in September, as compared with 17 per cent in the corresponding period last year.

Bankers said that if lower rates persist and is followed by lowering of policy rates, the base rate may be cut in three-six months’ time.

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