SBI hopes that rising yields will drive corporates to banks | Rare Techy

With the turning of the interest rate cycle due to rising inflation, the debt ratio has tightened in recent months, increasing the overall cost of borrowing for companies in the debt market.

However, bank lending rates to corporates have not moved as these are measured against individual banks’ marginal cost of funds-based lending rate (MCLR), a slower-moving internal benchmark.

Corporate bond spreads over benchmark 10-year government securities have also widened in the last three months.

For example, according to data compiled by CARE Ratings, a AAA-rated corporate lender had to borrow at 36 basis points (bps) above 10-year government debt on August 3, at according to data compiled by CARE Ratings.

Over the same period, the yield on the sovereign benchmark rose by 10 bps. In comparison, banks’ average year-on-year MCLR increased by 30 bps between May and July, according to RBI data. One basis point is one percent.

“Capacity utilization in the economy is about 75%, and we have a situation where we expect more companies to look to us to take advantage of credit facilities compared to the options available in the past to raise funds from the securities market,” SBI. president Dinesh Khara told reporters on Saturday.

Khara said that a large part of the loans approved to the companies are yet to be used. On the working capital front, it is about 49%, and 26% of unused temporary loans, which covers the quantum of such loans. ₹5 trillion.

“Other than that, we have almost a decent pipeline ₹1.2 trillion which clearly indicated the growth we are likely to witness on the corporate side,” said Khara.

SBI’s corporate loan book grew 10.6% from a year ago ₹8.74 trillion as of June 30, accounting for 35.7 percent of its total advances.

Infrastructure lending is a major component of corporate lending at India’s largest lender and, at ₹3.57 trillion, which is 14.6 percent of the bank’s total domestic loans.

Khara said the bank has witnessed growth in corporate lending to sectors such as power, roads and ports.

“In telecom, we have Reliance Jio. In oil and petrochemicals, we have seen excellent growth. In aviation and airports, again, we have seen decent growth; and also very good non-banking financial companies. appreciated,” Khara said.

While there are plenty of corporate loan opportunities in the market, banking experts highlight how some lenders are ultra-competitive, undercutting rivals and misjudging risk in the process. Mint reported on July 30 that leading private sector banks are taking a step back from some parts of the corporate loan market, as their state-owned rivals aggressively take on large borrowers at cheaper rates.

In September, Khara highlighted the mispricing problem in the corporate debt market when interest rates were too low. On Saturday, he said that the price of the error had decreased slightly.

“But perhaps unless people have excess liquidity on their balance sheets, they may resort to this. So, we are careful to maintain net profit margins and make sure not to misjudge the risk,” Khara said.