Mid-rung firms get easy money

Portfolio-obsessed banks lower rates for lesser bonds

Banks are building up their credit portfolio with uncertainty looming large over treasury income.

The rush to build up loan portfolios has pushed down interest rates for A -rated and AA-minus rated mid-corporates even below the rates fetched by AAA corporates in the bond market.

To be precise, a AAA corporate could raise five-year money from the bond market at 6.75-6.90 per cent, while a corporate with AA rating could raise money at 6.5 per cent in the loan market, said a banker.

Similarly, for 10-year funds, the AAA company could avail 7.15-7.20 per cent, while the loan to a single-A corporate is going at 7 per cent.

Bankers said that one AAA corporate is putting up loan proposals with numerous banks unlike earlier where the loan disbursement used to be driven by bank-client relationships.

Therefore, the same facility is getting sanctioned by multiple banks, while the disbursement could be happening with a single bank.

"It gives an impression to each bank that credit pick for that particular entity has gone up which is not so," added bankers.

According to bankers, the rush is driven by the requirement of marking to market the portfolio maintained in investments in the form of bonds or government securities, which is not required if the credit is given in the form of loan.

The investment portfolio of banks need to be valued at current market rate which is feared to be a depreciation loss.

This is because with interest rates rising in government securities market on the back of uncertainty on the inflation rate outlook, prices of government bonds are on a downslide. Such valuation norms are not prevalent for the loan portfolio.