Buoyed by demand from telecom firms, banks gave Rs 1.62 lakh crore new loans during the first three months of this financial year. During the period, bank deposits rose Rs 1.46 lakh crore over the preceding quarter.
Loans peaked in June as telecom companies borrowed around Rs 1.06 lakh crore to pay the government for acquiring third generation spectrum for their mobile telephony and broadband wireless access. Only a slice of the money came from internal accruals and bond issuances while the bulk was raised as bank loans.
In most years, the first quarter is a lean period for banks as companies take a few months to finalise their capital expenditure. But this year was different. Besides borrowings by telecos, several companies decided to tie up their loans before the new system of loan pricing — pegged to a new benchmark called base rate, came into effect from July.
Two senior bankers said there was loan demand from non-telecom firms, particularly those who preferred fixed interest rates, towards end June. “Fixed rate borrowers who were worried about how the base rate system will evolve took loans before July 1,” said an official with a mid-sized local bank.
RBI had asked all banks to replace the earlier benchmark of prime lending rate with the new base rate from July 1. Under the base rate mechanism, no bank can lend below the benchmark. In the PLR regime, banks freely lent below the prime rate.
According to the data released by RBI on Wednesday, bank advances as on July 2 stood at Rs 34,02,389 crore against Rs 32,88,074 crore on March 26, 2010, while deposits rose from Rs 46,32,703 crore to Rs 44,86,574 crore. Bank investments during the period rose Rs 48,656 crore to Rs 1431340 crore.
On a YoY basis, the 14.9% rise in deposits was below the RBI forecast of 18% growth for this fiscal, but advances surged 21.7%, well above the central bank’s projection of 20%.
Bankers are worried that the credit demand may not sustain as most telecom firms have taken medium to short-term bank loans with the intention to refinance them with cheaper foreign currency loans. As a special dispensation, RBI has allowed telecom companies to resort to external commercial borrowings to finance the 3G licence fee. In fact, some bankers have recently voiced their concern in the customary pre-credit policy meeting with governor Subbarao. At the meeting, RBI officials expressed their anxiety over the slow deposit growth in banks.
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