Lending rates head into single digits
The Financial Express, April 24, 2009, Page 1
Sunny Verma, New Delhi
In a likely pointer to lower lending rates, a clutch of Indian companies has borrowed medium-term funds at single digit interest rates. A large private bank has lent one-year funds to a big private company at a very attractive rate of close to 8%, while a public sector company borrowed 30-day money at 5.25% from the same bank, according to a senior executive at the bank, who said he was not authorised to speak to the media.
Other bankers and infrastructure companies expressed surprise at the 8% rate, but said early signs of cheaper credit are visible now.
A medium-sized infrastructure company, GMR, said rates have to fall into single digits. According to Subbarao Amarthaluru, group CFO of GMR, “Lending rates are now down to less than 11% from 13%, but we want them to drop below 10% for projects to become viable.”
Lending rates for top-notch companies are now close to single digits, though benchmark prime lending rates are still holding up. “Downside risks have clearly come down. Some stability is coming back into the system”, said G Ramachandran, head-global research group, ICICI Bank.
The spread that AAA-rated corporate borrowers have to pay over government bond yields has fallen to the pre-crisis level of 150 basis points from 400 basis points in December 2008. The spread on two-year AAA corporate bond is about 135 basis points. Yields on benchmark 10-year government bond are at about 6.2%. This means, a top-notch corporate actually borrowed at less than 8%.
Amarthaluru said the situation has improved a lot after September. “Getting funds is not as difficult now as it was in the last six months, especially after February.”
To prod the banks to pare lending and deposit rates, RBI had on Tuesday cut repo and reverse repo rate by 25 basis points each.
A senior bank official said discounts on loans below PLR have risen sharply in the past few weeks, with banks trying to lend their surplus funds.
Awash with funds, banks deposited over Rs 1,00,000 crore a day with the Reserve Bank in the last three weeks. “There is no dearth of funds now. Our credit growth is around 27-28%,” said Punjab National Bank chief general manager LP Agarwal.
PNB is charging around 10-11% for a one-year loan to top-rated companies, he said. He, however, said lending rates cannot fall sharply unless deposits rates tumble. RBI deputy governor Rakesh Mohan said in London on Thursday that banks were still saddled with high-cost deposits and so their lending rates would soften only gradually.
Noting that nearly 70% bank lending was at rates below benchmark PLR, RBI on Tuesday decided to set up a working group to review the BPLR system to make credit pricing more transparent.
GMR’s Amarthaluru said he expects interest rates to drop a bit more since the rates of bulk deposits have crashed. Between October 2008 and April 18, 2009, public sector banks have reduced term deposit rates by 125-250 basis points, while the reduction in bulk deposits have been much steeper. The weighted average lending rate fell from 12.3% in 2007-08 to around 10.9% in 2008-09, RBI said in its annual review of the monetary policy on Tuesday.
The Financial Express, April 24, 2009, Page 1
Sunny Verma, New Delhi
In a likely pointer to lower lending rates, a clutch of Indian companies has borrowed medium-term funds at single digit interest rates. A large private bank has lent one-year funds to a big private company at a very attractive rate of close to 8%, while a public sector company borrowed 30-day money at 5.25% from the same bank, according to a senior executive at the bank, who said he was not authorised to speak to the media.
Other bankers and infrastructure companies expressed surprise at the 8% rate, but said early signs of cheaper credit are visible now.
A medium-sized infrastructure company, GMR, said rates have to fall into single digits. According to Subbarao Amarthaluru, group CFO of GMR, “Lending rates are now down to less than 11% from 13%, but we want them to drop below 10% for projects to become viable.”
Lending rates for top-notch companies are now close to single digits, though benchmark prime lending rates are still holding up. “Downside risks have clearly come down. Some stability is coming back into the system”, said G Ramachandran, head-global research group, ICICI Bank.
The spread that AAA-rated corporate borrowers have to pay over government bond yields has fallen to the pre-crisis level of 150 basis points from 400 basis points in December 2008. The spread on two-year AAA corporate bond is about 135 basis points. Yields on benchmark 10-year government bond are at about 6.2%. This means, a top-notch corporate actually borrowed at less than 8%.
Amarthaluru said the situation has improved a lot after September. “Getting funds is not as difficult now as it was in the last six months, especially after February.”
To prod the banks to pare lending and deposit rates, RBI had on Tuesday cut repo and reverse repo rate by 25 basis points each.
A senior bank official said discounts on loans below PLR have risen sharply in the past few weeks, with banks trying to lend their surplus funds.
Awash with funds, banks deposited over Rs 1,00,000 crore a day with the Reserve Bank in the last three weeks. “There is no dearth of funds now. Our credit growth is around 27-28%,” said Punjab National Bank chief general manager LP Agarwal.
PNB is charging around 10-11% for a one-year loan to top-rated companies, he said. He, however, said lending rates cannot fall sharply unless deposits rates tumble. RBI deputy governor Rakesh Mohan said in London on Thursday that banks were still saddled with high-cost deposits and so their lending rates would soften only gradually.
Noting that nearly 70% bank lending was at rates below benchmark PLR, RBI on Tuesday decided to set up a working group to review the BPLR system to make credit pricing more transparent.
GMR’s Amarthaluru said he expects interest rates to drop a bit more since the rates of bulk deposits have crashed. Between October 2008 and April 18, 2009, public sector banks have reduced term deposit rates by 125-250 basis points, while the reduction in bulk deposits have been much steeper. The weighted average lending rate fell from 12.3% in 2007-08 to around 10.9% in 2008-09, RBI said in its annual review of the monetary policy on Tuesday.
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