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Lenders say there aren’t many stakeholders even for the covid-19 lines of credit that the government wants banks to push aggressively, two bankers said on condition of anonymity.
Any demand that exists comes primarily from small businesses that have difficulty paying staff salaries and covering fixed costs. “It is small companies, as providers of large manufacturers, that need the covid-19 emergency credit lines. The working capital cycle of these small borrowers has been affected due to delays in payments by their large clients during the closing, “said the first previous bank quote.
However, these companies find it difficult to access institutional credit, as most banks become risk-averse and content to keep the money with the Reserve Bank of India (RBI) even at 3.75%
The largest borrowers, the bankers mentioned above said, can still keep up with their resources, and therefore lenders have not seen much demand for credit from them.
In late March, state banks such as the State Bank of India (SBI), Union Bank of India and Bank of Baroda (BoB) had established a scheme for covid-19 emergency lines of credit. These were mainly limited to 10% of the working capital limit based on borrower funds.
Credit growth has been moderate for quite some time and between March 13 and April 10, non-food credit grew by 2%. However, throughout the fiscal year 2016, credit growth stood at 7.6% and was led by large corporations and non-bank financial companies (NBFCs). This was before the start of the blockade of covid-19 and the closure of factories that led to the drop in demand for credit from large companies.
“Given that the growth outlook in this closing scenario remains challenging, the focus is on asset quality, liquidity and capital adequacy,” said a note from Centrum Institutional Research on May 5.
However, with mounting government pressure, banks are putting pressure on customers to send emails and gain approval for the additional 10% line of credit, even if they don’t plan to use it, the second banker quoted above said. .
“We have to show that the bank has sanctioned the credit in the form of covid-19 lines of credit. Therefore, we are calling borrowers and trying to convince them to take advantage of this line of credit. It doesn’t necessarily mean they have to use it and an email confirmation is enough to extend this line. The bank does not need to portray the use of the funds, a simple disbursement is satisfactory, “said the second banker.
Meanwhile, RBI’s plan to discourage lenders from using the reverse repository window to park excess liquidity has so far not advanced. By contrast, banks have increased their participation in reverse repo auctions, depositing even more money with the central bank. The reverse repository is the rate at which RBI borrows from commercial banks and is an important monetary policy tool intended to control the liquidity of the system.
The first reverse repo cut occurred on March 27 and the next on April 17. However, despite these sharp cuts, banks have parked ₹8.53 trillion on May 5 in the reverse fixed-rate repo (at an interest rate of 3.75%), compared to ₹7.09 billion on April 17 (3.75%) and ₹4.43 billion on March 27 at 4%.
“While the intention is to pressure banks to pass excess liquidity on to companies, banks believe that liquidity is not the problem. It is a mixture of risk aversion and also the lack of considerable credit demand. Most borrowers are seeking a moratorium on overcoming the crisis, rather than new debt, “said the second banker.
Speaking to Mint by phone, Prashant Kumar, executive director of Yes Bank, said Thursday that when there is no economic activity, there can be no demand for credit and if there is demand, it will only be for consumption.
“The demand for economic activity will only occur when there is some activity on the ground. However, I think that once the blockade is lifted, people would look for credit, “Kumar said.
According to the bank’s regulatory filings, 15-25% of its borrowers, belonging to corporate segments, small businesses and retailers, have opted for the three-month moratorium. The number is 35-45% in terms of the value of these loans. Yes, Bank borrowers who were eligible for the moratorium had a total outstanding of ₹Rs 14,956 million as of March 31.
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