Bank of Baroda, Canara Bank let go of ₹54,000 crore loans for margin safety
Bank of Baroda
and
Canara Bank
collectively shed about ₹54,000 crore of
corporate loans
in the June quarter to protect their net interest margins from falling sharply.
These loans, largely extended to various
public sector undertakings
, came under pressure for repricing following the 100 basis points (bps)
repo rate cut
since February. Some of these organisations sought revisions to their existing loans, beyond the already reduced rates, bankers said.
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Faced with the demand to lower interest rates further, the banks chose to let go of the business rather than compromise margins that were already under stress.
In the June quarter, Bank of Baroda's corporate loan book fell 10% quarter-on-quarter to ₹3.7 lakh crore. Loans to NBFCs, which form nearly a third of the corporate book, were down 11.6% sequentially.
"There were some transactions, we had to let it go because the pricing was not working. They are high-quality assets but do not give optimal margins. Because of fine pricing, we could not retain those customers,"
Bank of Baroda
managing director and CEO Debadatta Chand said.
In sync with lower
bond yields
, the pricing of loans to companies has gone from fine to very fine.
BoB's corporate loan book fell by ₹42,000 crore in the first quarter of the current fiscal to ₹3.70 lakh crore. It has shed ₹15,000 crore in the NBFC loan book within the corporate loan portfolio.
Some of the PSUs were negotiating interest rates on existing loans beyond the repo rate reductions,
Canara Bank
managing director & CEO K Satyanarayana Raju told ET. "Hence we requested them to repay," he said.
The lender shed about ₹12,000 crore of loans in the first quarter given to NBFCs, including a large central PSU. "We need not compromise on margin while chasing balance sheet growth. The demand from the retail segment is good enough to take care of advance growth," Raju said.
Canara Bank's gross advances grew 12.4% year-on-year to about ₹11 lakh crore.
Canara's
net interest margin
contracted to 2.55% in the June quarter as compared with 2.73% in the March quarter. BoB's NIM shrank to 2.91% against 2.98% over the same period.
A large public sector lender is luring corporation or NBFC borrowers with much cheaper 5.8-5.9% rates for one year, apparently to show top line growth, leading to a rate war, a senior bank executive said on the condition of anonymity.
The falling bond yields also gave corporations another window for raising funds at lower rates.
Fund raising
through issuance of
corporate bonds
rose to a four-year high of ₹3.27 lakh crore in the June quarter at lower rates compared to bank lending rates, according to a BoB report.
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Bank of Baroda, Canara Bank let go of ₹54,000 crore loans for margin safety
Kolkata|Mumbai: Large banks such as Bank of Baroda and Canara Bank collectively shed about ₹54,000 crore of corporate loans in the June quarter to protect their net interest margins from falling sharply. These loans, largely extended to various public sector undertakings , came under pressure for repricing following the 100 basis points (bps) repo rate cut since February. Some of these organisations sought revisions to their existing loans, beyond the already reduced rates, bankers said. Explore courses from Top Institutes in Please select course: Select a Course Category Management Data Analytics MCA Digital Marketing Project Management Public Policy PGDM Technology Product Management Leadership Data Science Design Thinking Degree Finance healthcare CXO Operations Management Others others MBA Cybersecurity Artificial Intelligence Data Science Healthcare Skills you'll gain: Duration: 11 Months IIM Kozhikode CERT-IIMK General Management Programme India Starts on undefined Get Details Skills you'll gain: Duration: 10 Months IIM Kozhikode CERT-IIMK GMPBE India Starts on undefined Get Details Skills you'll gain: Duration: 9 Months IIM Calcutta CERT-IIMC APSPM India Starts on undefined Get Details Faced with the demand to lower interest rates further, the banks chose to let go of the business rather than compromise margins that were already under stress. In the June quarter, Bank of Baroda's corporate loan book fell 10% quarter-on-quarter to ₹3.7 lakh crore. Loans to NBFCs, which form nearly a third of the corporate book, were down 11.6% sequentially. "There were some transactions, we had to let it go because the pricing was not working. They are high-quality assets but do not give optimal margins. Because of fine pricing, we could not retain those customers," Bank of Baroda managing director and CEO Debadatta Chand said. In sync with lower bond yields , the pricing of loans to companies has gone from fine to very fine. BoB's corporate loan book fell by ₹42,000 crore in the first quarter of the current fiscal to ₹3.70 lakh crore. It has shed ₹15,000 crore in the NBFC loan book within the corporate loan portfolio. Some of the PSUs were negotiating interest rates on existing loans beyond the repo rate reductions, Canara Bank managing director & CEO K Satyanarayana Raju told ET. "Hence we requested them to repay," he said. The lender shed about ₹12,000 crore of loans in the first quarter given to NBFCs, including a large central PSU. "We need not compromise on margin while chasing balance sheet growth. The demand from the retail segment is good enough to take care of advance growth," Raju said. Canara Bank's gross advances grew 12.4% year-on-year to about ₹11 lakh crore. Canara's net interest margin contracted to 2.55% in the June quarter as compared with 2.73% in the March quarter. BoB's NIM shrank to 2.91% against 2.98% over the same period. A large public sector lender is luring corporation or NBFC borrowers with much cheaper 5.8-5.9% rates for one year, apparently to show top line growth, leading to a rate war, a senior bank executive said on the condition of anonymity. The falling bond yields also gave corporations another window for raising funds at lower rates. Fund raising through issuance of corporate bonds rose to a four-year high of ₹3.27 lakh crore in the June quarter at lower rates compared to bank lending rates, according to a BoB report.
