Lending rates bottomed out, bulk deposit costs have risen

MUMBAI: Indian Bank MD & CEO, Binod Kumar has said that the marginal cost of lending rate has bottomed out and may start inching up as cost of bulk deposits has gone up for banks. He added that the upward pressure on bulk deposits could also move to retail deposits and that rising yields in the bond market would mean that treasury profits would be limited.

Kumar said that credit growth was outstripping deposit growth and should this trend continue there will be pressure on resources.

According to Kumar, the Emergency Credit Line Guarantee Scheme 5.0 announced by the govt to provide liquidity through banks for businesses impacted by the West Asia crisis would lead to an increase in demand for credit.

“This facility is for borrowers who are taking working capital from us. Based on the experience under past schemes, all borrowers may not want to go for it. We are expecting additional borrowing of Rs 12,000 to Rs 15,000 crore under this scheme.

Indian Bank is looking to raise Rs 5,000 crore during the current financial year and plans to use the proceeds to make provisions for expected credit loss with new rules prescribing that banks have to set aside money even before a borrower defaults, if the borrower shows signs of financial duress.

“So far we have not seen any major stress on borrowers on account of the West Asia crisis. If there was any, we would have seen it through an increase in special mention accounts (SMA),” said Kumar. SMA are those accounts where the borrower has not defaulted but has missed out on timely payments, which is seen as a sign of stress.

According to a report from State Bank of India’s research department, the scheme would benefit 1.1 crore small businesses.
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