Small and medium-sized public sector banks (PSBs) have become aggressive in the project finance market, undercutting their larger counterparts in order to increase their exposures to higher rated companies.
Bankers FE spoke to said there is intense competition in the market among lenders to participate in the syndication of road and other infrastructure projects executed by public sector units (PSUs) and players. from the highly rated private sector. Even after the two repo rate hikes in May and June, players like NTPC were able to secure funding at 6.5%, just 160 basis points (bps) above the repo, according to banking sources. That was before Friday’s repo rate hike of 50 basis points.
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Additionally, there are several examples of a small PSB overtaking one of the larger private banks to be part of a marquee syndication deal. “The smaller PSBs are quite aggressive now and one of them has actually lowered the MCLR (marginal cost of funds-based lending rate) to become more competitive,” said a senior private bank executive. mean. However, big players like State Bank of India (SBI) and Bank of Baroda (BoB) have remained conservative on pricing, unwilling to price silver below 7.2-7.25 %, he added.
While back-to-back rate hikes have pushed lending rates higher, project finance is still available at around 6.7%, bankers said.
Prashant Kumar, MD and CEO of Yes Bank, said that apart from the Big Five banks – public and private lenders – other PSBs have recently become aggressive in funding highly rated companies. “There is enormous competition. Banks that are sitting on large deposits, where the CD (credit-to-deposit) ratio is low, are better placed to offer competitive rates, compared to banks where liquidity is always at a higher cost”, a- he declared. Yes Bank would prefer to protect and improve its margins at this stage, he added.
Interestingly, a number of PSBs – including SBI, BoB and Canara Bank – reported a sequential decline in their net interest margins (NIMs) in the first quarter of FY23. the downside to a staggered transmission of repo rate hikes through their loan portfolios.
SBI Chairman Dinesh Khara said the bank is now relatively comfortable with current trends in risk pricing. “Risk mispricing has gone down, but maybe until people are struggling with excess cash on their balance sheets, they could resort to it (mispricing). As far as we are concerned, we are very careful to maintain our NIMs and we ensure that there is no misjudgment of risk as far as we are concerned as a bank,” he said. .
Bank credit outstanding to large industries increased 3.3% year-on-year (year-on-year) in June 2022 to $24 trillion, from a 4.8% contraction seen in June 2021.
