" The fiscal consolidation programme, while delayed, may compensate in quality, especially if state governments…
New Delhi,Manju AB: While retail lenders have to cough up base rate or a mark-up over the base rate for their home, car or personal loans, banks are lending to the industry at rates lower than the base rate by investing into commercial papers or bonds floated by companies.
According to data released by the Reserve Bank of India (RBI), for the fortnight ended December 15, banks have invested a whopping Rs 52,000 crore into commercial papers of various companies at rates anywhere between 7.08% to 12%, depending on the risk profile of the company. At 11% from a year ago, the bank credit growth during the fortnight ended December 15 was well above the average rate of growth this fiscal, with refinance opportunities and working capital requirements from companies.
Some projects in road sector, non-renewable sector, and other infrastructure are also showing nascent signs of revival with the government restarting its spend. However, the aggregate credit growth data for the banking sector until October 30 shows the pace of growth slackening for industry and rising for the retail borrowers.
The year-on-year growth for the micro and medium scale industries slowed down 4.2% to Rs 3,80,000 crore, while the bank credit for the medium industrial segments de-grew 9.1% to Rs 1,12,700 crore. Bank credit for the big industry slowed down to 4.2% to Rs 21,67,700 crore. Deep Narayan, former director at Fitch India, said, “Bank treasuries are investing into the commercial papers of the companies and it is resulting in the sensitive sector exposures looking bloated. Often, when accounts cannot be restructured, bank treasuries are providing additional funding to the companies from their treasuries.”
Though the bank credit growth is tepid, banks that are flush with liquidity are forced to invest their cash in the commercial papers that companies float.