Banks offer innovative products to appeal to corporate clients
MUMBAI : Indian banks increasingly combine loans with other instruments to prevent erosion of activity, as corporate clients increasingly seek financing outside the traditional banking system through equities and bonds.
Along with traditional working capital and term loans, lenders offer to invest in corporate bonds, help clients take out external commercial loans (ECBs) and even buy their stocks, two said. bankers on condition of anonymity.
The State Bank of India (SBI) recently invested ??100 crore in JSW Cement Ltd, part of the $ 13 billion JSW Group, through Mandatory Convertible Preferred Stock (CCPS), which would be converted into common stock at a later date.
“Today, banks have sufficient leeway for equity investments. Regarding the SBI-JSW transaction, ??100 crore is a fairly small amount, considering the size of the group of companies’ balance sheet. The idea here is also to participate in increasing the equity of the company and not just rely on interest income from loans, ”said one of the two bankers mentioned above.
Business borrowing has been limited over the past two years, with businesses repaying around ??2,000 billion in debt over the period. Bankers said business banking services are changing and it is up to lenders to tailor their strategies to the needs of large borrowers. While personal lending has kept lending growth going, there are concerns that margins may decline due to intense competition in the personal lending industry.
“From a bank’s point of view, it’s not just about credit. We need to invest in bonds and stocks and also participate in fundraising overseas. Blue-chip clients can afford to approach these markets, and those rated “AA” and “AAA” will be able to raise funds at lower rates than we offer on loans, “said the senior banker.
However, lenders are hopeful that business lending will pick up as capital spending plans stabilize in the coming quarters. Borrowers who turned to the commercial paper market because of the abundance of liquidity would be back once interest rates rise, they said.
Banks’ aggregate equity investments reached ??84,565 crore as of October 22 from ??79,085 crore as of March 26, data from the Reserve Bank of India (RBI) showed.
The second banker quoted above said he expects investments in stocks and bonds in some large companies to increase in the coming months as more banks realize that they are not. cannot afford to be left behind. “In the current scenario, large borrowers will seek better margins from banks. By pairing certain instruments with loans, we can ensure that our returns and risk-adjusted return on capital are healthy, ”the Second Banker said.
Industry executives believe there is room for business credit growth despite the lack of enthusiasm over the past two years. SBI Chairman Dinesh Khara said on December 22 that the ratio of bank credit to gross domestic product (GDP) was around 56% and credit and market debt to GDP was around 90. %, leaving room for growth.
“If you look at some developed markets like the United States, it (debt to GDP) would be up to 200% of the GDP ratio. So I’m trying to draw your attention to the fact that there is huge potential for increasing corporate debt to support their economic activities, ”Khara said.
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