SBI, Canara Bank to stop lending at lower rates for short term loans
By Ankit Sharma
Nov 12, 2007
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New Delhi: Two of the biggest banks in India have decided to get rid of a large number of short term loans to ease the pressure on their net interest margins (NIM).

State Bank of India (SBI), and Canara Bank have decided that they won't roll over such loans of about 8,000 crores on maturity because the borrowers were reluctant to accept higher interest rates.

Refusing to buckle under corporate pressure to lend at lower rates, SBI, the largest public sector bank has decided to adopt an aggressive pricing strategy for its loans. Keeping with the policy, the bank has stopped the disbursement of around Rs.7,000 crores of loans, which were sanctioned earlier.

SBI Chairman, O P Bhatt said,“We have shed Rs 8,000 crore of low-yielding advances in the first half of the year. We sanctioned another Rs 6,000-7,000 crore of loans, but could not disburse them due to a difference of opinion on pricing. There is an aggressive move within the bank where pricing of assets is concerned.”

Canar Bank also acted in tandem. M B N Rao, chairman and managing director, Canara Bank said, “We have also shed close to Rs 8,000 crore of low-yielding advances. These are typically short-term loans, which we have decided not to roll over.”

SBI had decided to increase its interest rates on small term corporate loans by 15 basis points from February this year. This has led to a decrease in offtake of loans by corporates, as the banks are asking for better rates, which the corporates are finding difficult to digest.

The recent hike in CRR by RBI has made many banks to reduce their deposit rates. Though, the step by RBI has not yet impacted the interest rates on various loans, but with the pressure increasing on banks, the interest rates may also witness necessary correction very soon. Major players in the small ticket loan segment have also decided not to give any further loan without a close scrutiny of the documents, credit history and repayment capacity of the borrowers. ICICI Bank, the largest private sector lender has decided to step out of this market and will not give any small ticket personal loan anymore.

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