LIC loans to corporates up 233%

Corporate lending by the country's largest financial institution, the Life Insurance Corporation of India (LIC), has risen by over 233 per cent in the first seven months of the fiscal.

To date, corporates have borrowed over Rs 3,800 crore from the institution, and "there are many more proposals pending with us," said LIC chairman S B Mathur.

Banks however, have seen a decline in the non-food credit this fiscal from Rs 91,103 crore to Rs 46,751 crore up to November 14 as per the Reserve Bank of India (RBI).

Corporates are exploring expansion and some are setting up new projects especially in the area of infrastructure.

"There has been a great demand for funding by corporates this fiscal, and many proposals are for term loans," said Mathur.

Rise in corporate lending partly comes on account of LIC paring down its interest rates on loans in keeping with the falling interest rate scenario.

Loans are being given at 6.5 to 12.5 per cent, depending upon the project risk, credit profile of the individual company and the credit rating.

"Interest rates are related to the corresponding government security in the market. In the event of a revision in the credit rating, the terms and conditions of the loan will be reset," said LIC sources.

Development finance institutes like IDBI and IFCI not being as active and ICICI having been converted into a bank, LIC has proven to be the only source for large-sized loans of longer tenures, said institutional sources.

"Banks today are more into retail banking, while corporates are seeking large-sized term loans at attractive interest rates," they added. Many banks have also approached LIC to invest in their respective Tier-II bonds.

"We intend to leverage on our strength in terms of long term funds, which can be offered for a longer tenure. Moreover, our cash flows and requirement are such that LIC can give greater moratorium," said Mathur.

Corporates need to approach more than one-two players/ banks should it need to borrow large-sized funds.