Banks slowdown on loan disbursal, both retail and corporate

Banks have slowdown the disbursal of loan, both retail and corporate due to shortage of funds. Banks are distributing loans on selective basis and holding back the fund commitments to corporate customers. Bankers pointed out that banks are asking for higher margins and more security against the loans, in loans to sensitive sectors.

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.

He added but no reduction has been done in retail loans such as housing loans and car loans and loans to SME and agri sectors.

Mr R.S. Reddy, Chairman and Managing Director, Andhra Bank, pointed out that the liquidity crisis in the financial markets is also responsible for driving banks to 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 stated that banks have stopped lending. “Lending is down to a trickle in whatever form it is,” he said.

Ms Renu Challu, Managing Director, State Bank of Hyderabad said though there is no respite in applications for funding projects or working capital from the corporates, but there has been decrease in the disbursal due to lack of liquidity from the banks’ side.

“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.

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

Mr K.R. Kamath, Chairman and Managing Director, Allahabad Bank stated for banks to get short-term money is a costly to affair when the cost of funds moving up significantly. “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, stated that banks are finding lending operations difficult in view of tight liquidity conditions. “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.”

According to Mr Deepak Khaitan, Chairman, McNally Bharat Engineering Company Ltd said that on the corporate borrowing front, companies are holding back their decisions to raise funds. “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.

Regarding the loans against shares bankers said many of the banks are asking for higher margins or selling shares.

Mr Sobti pointed out, “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”.

“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.