A clutch of big public sector banks such as Union Bank of India, Punjab National Bank and Bank of Baroda are not lending to companies, while Bank of India, which saw a 84% drop in net profit in the April-June quarter is trying to consolidate its book.
Banks are moving into the second consecutive year without lending to large firms. These big companies are struggling with stretched balance sheets, thanks to high borrowing and higher risk.
A clutch of big public sector banks such as Union Bank of India, Punjab National Bank and Bank of Baroda are not lending to companies, while Bank of India, which saw a 84% drop in net profit in the April-June quarter is trying to consolidate its book. Leading private sector lender, ICICI Bank which saw its incremental credit of Rs12,000 crore during last quarter, said its corporate book expanded due to lending to the top-rated public sector undertakings (PSUs).
Till a few years ago, large companies used to be banks' big clients. But now, banks are wary of lending to them.
Chanda Kochhar, chief executive officer, ICICI Bank, said in a media concall on Friday, "The environment is still very volatile. But some sectors, such as the mining and heavy commercial vehicle, are showing signs of revival."
She said the heavy commercial vehicle sector front-runs the country's economic growth, hinting that faster economic growth is round the corner.
Bankers says corporate balance-sheets are still stretched and it may take at least two quarters to see any momentum in corporate credit. Most companies are stressed and banks across the board are going slow on funding corporates.
"Some companies are stressed as the economic cycle has not yet turned round and the demand is yet to pick up," says a senior banker.
Ranjan Dhawan, managing director and chief executive officer, Bank of Baroda, said, "Big companies tell us that there are no big investments. So the large corporate credit is not picking up. And the trend is expected to continue for the next two quarters. Not all companies are out of the woods. In the real estate sector, there is an overhang of unsold inventory, except for a few good builders who have witnessed sales. The weak quarterly corporate results declared so far is also a concern."
Arun Tiwary, chairman and managing director, Union Bank of India, said, "We will be going slow on the corporate credit growth. We will be focusing on retail, agriculture, and small and medium enterprises sector. We have been going slow on corporate credit and it will continue for sometime."
Another senior banker said, "Large companies are either seeing a pile-up of inventory forcing them to go slow on production putting a stress on the repayments. Many companies with large exposures are on the verge of a default, but bankers are somehow managing the books by funding the interest payments to keep their accounts standard."
All PSU banks that announced their quarterly financial results saw a sharp drop in profits. Dena Bank reported a 81% drop in net profit to Rs 15 crore while Bank of Baroda's net dropped 22% to Rs 1,052 crore. Punjab National Bank posted a 49% fall in its quarterly net profit to Rs 721 crore while Union Bank of India profit dropped 21.88% to Rs 518.78 crore.
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