The Hindu Business Line : ‘Predatory lending’ draws RBI’s attention

Mumbai, Nov. 20 The possibility that some banks may be resorting to “predatory lending” in the face of lacklustre appetite for loans and advances has caught the banking regulator’s eye.

The Reserve Bank of India has called a meeting of select bankers later this month to assess the ground situation about the extent of predatory lending and its implications.

Faced with tepid credit uptake in the wake of the economic slowdown, banks are wooing customers, especially in the small and medium enterprises category, from rivals with the promises of lowering pricing and extending additional credit facilities.

With banks making concessions to customers (who have been weaned away from rivals) to maintain balance sheet growth, bankers fear that yields on advances would come under pressure and bad loans could rise.

In the financial year (up to November 6), bank credit has grown at a slower 4.2 per cent (Rs 1,16,164 crore) compared with 11.5 per cent (Rs 2,72,123 crore) in the corresponding period last year.

Competitive pressure

“There is competitive pressure among banks to maintain balance sheet growth and secure market share. It must be borne in mind that when it comes to the crunch with respect to consolidation in the banking sector, a bank with bigger balance sheet will naturally be positioned as an acquirer. Given that demand for loans and advances has not been encouraging in this financial year so far, some banks are forced to poach customers from rivals,” said a senior official with a public sector bank.

Customers, according to the banker, no longer believe in having a long-term business relationship with banks. Customers do not think twice about ending association with one bank and moving to another if the rival bank quotes 50 basis points lower interest rate, offers additional credit facilities and better service.

Notwithstanding the fact that banks have established policies on loan takeovers, bankers fear that the fixation with balance sheet growth via this “inorganic route” could potentially lead to a bad loans problem.

A bank, which is sceptical about a borrower’s expansion plans and future cash flows, will readily agree to the takeover of a borrowal account by another bank, which is eager to bag the client. Bankers pointed out that this could lead to potential NPAs getting transferred from one bank to the other.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
DCB raises Rs 81 cr thru QIP

Rupee gains on dollar inflows

Forex reserves rise $962 million

HDFC Standard Life plans IPO next fiscal

New Tax Code may give a fillip to long-term life policies

Corporates swamp the bond market

SKS Micro sees scope in cross- selling products

Bonds rally on auction cues

India’s exposure to US bonds least among BRIC nations

Lower interest rates make bonds attractive

Banks find DRT a better recovery mechanism

‘Predatory lending’ draws RBI’s attention

Call rate ends lower

Tokio Marine, Edelweiss Capital tie up

New MD for Bank of Rajasthan