Banks wary of fresh exposures

Liquidity crunch makes loan disbursements slow for steel projects.

Some commercial banks have started going slow on disbursing loans to certain segments of industry in view of the tightness in liquidity, even as the Reserve Bank of India (RBI) is set to kick off its annual resource management meetings with commercial banks in the second week of March.

A very large public sector bank has decided not to take fresh exposure to pig iron and sponge iron steel projects. Banks are also staying away from some of the public sector undertakings which bargain hard for cheap loans.

"We are selectively going slow in certain segments as we do not want to create a situation where we do not have any money to disburse loans after sanctioning them," said the chairman of a public sector bank.

According to another banker, all loans for the trade and services sector are now disbursed at prime lending rates (PLR) of banks and not below that as has been the case for the last few years.

"Till now, about 80 per cent of loans were given at below PLR. Now, the quantum has come down to 65 per cent or so. Moreover, those corporations which were sourcing loans at 6.5-7 per cent last year are now paying about 9-9.5 per cent," said a bank CEO.

Bankers are also not too willing to sanction loans for greenfield projects, while expansion and modernisation projects are not facing any problems.

The liquidity situation can turn worse next year as four mega-power projects and airport modernisation projects will kick off soon requiring massive funding. Besides, airlines will require about Rs 35,000 crore to buy aircraft for which they have already placed orders.

On a year-on-year basis, till February 3, the banking sector's deposit portfolio grew by 17.6 per cent or Rs 2,94,813 crore while the credit portfolio grew by 31.2 per cent or Rs 3,28,675 crore.

The credit deposit ratio of the banking sector is now over 70 per cent, leaving virtually no leeway for banks to lend more as they need to invest 25 per cent of deposit liabilities in government securities in the form of SLR and another 5 per cent with the RBI in the form of cash reserve ratio (CRR). Most banks have liquidated their excess SLR holdings to pump up their credit portfolios.

In the first nine months of the financial year 2005-06, ICICI Bank raised its loan book by 40 per cent. For State Bank of India, the credit growth is about 28 per cent. A very large private bank last week was seen raising 60-day money at 8.3 per cent to tide over liquidity strain.