Financial Daily from THE HINDU group of publications
Thursday, Nov 27, 2003
Money & Banking - Credit Market
Corporate - Trends
For capacity addition, capital goods import More mid-size cos tap bank funds
Mumbai , Nov. 26
AFTER a spell of slack demand from India Inc for most loans other than working capital requirements, mid-sized corporates are now approaching banks for term funds. Surprisingly many of them are keen to lock into fixed rate loans with a growing perception that, interest rates are soon to harden, say bankers.
Demand for term loans with tenors longer than a year is picking up with a round of fresh capacities being added in various manufacturing sectors. Addition of fresh capacities, a sign of industrial recovery, is a phenomenon not seen in the country for over a couple of years now.
"The A, A+, AA- and AA are the types of corporates that are coming to borrow today. The fund demand is not the regular working capital requirements that were there even earlier but an appetite for term loans for expansion of existing projects and some capital goods imports. This has been seen in various sectors such as export oriented-textile units, auto component and auto ancillary units, steel companies and captive power plants," said Mr Bala Swaminathan, Senior General Manager, Credit, ICICI Bank.
Many corporates want to lock into fixed rate loans for five years now. There is a growing feeling that interest rates may now move northwards. "Even if interest rates fall by another 1.5 percentage point, clients feel that banks may not necessarily pass on the benefits to them, therefore it is best to lock in now," he added.
The increased demand for domestic bank credit comes in the wake of the Government virtually closing the external commercial borrowing (ECB) route and the recent checks and balances introduced in the corporate bond market. With both these routes stifled, at least temporarily, it leaves little choice for corporates but to turn to banks' funds.
The ECB window is open only to top tier corporates with the new restrictions on the maximum spread over Libor at which it can be raised.
The AAA corporates are not seeking term loans now since most are sitting on piles of cash and some on excess capacities. Most of the top-tier corporates have already accessed low cost funds through ECB route prior to the recent tightening of norms.
"Over a dozen mid-sized, private companies with turnover between Rs 400 crore and Rs 600 crore are interested in term loans and they want to lock into the going interest rates," said Mr Samir Bhatia, Country Head, Corporate Banking, HDFC Bank. He, however, declined to give away the names of the companies due to competitive pressures.
The loans in demand are the ones with tenors between 3 and 5 years of quantum Rs 50-70 crore at interest rates of 6-8 per cent.
Earlier, with general perceptions of softer interest rates, the craze had mostly been for short-term funds either directly raised from the bond market or at times the Mibor-linked loans, innovatively designed benchmarked to the Mumbai inter-bank rates.
In recent months, all bankers and central bankers have been hinting at signs of credit pick up and economic recovery. The non-food bank credit pick up has been steady in recent months with an average fortnightly increase of over Rs 5,000 crore. The increase in non-food bank credit seen for the current year till October 31 is at Rs 45,453 crore, according to the statistics published by the RBI.
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