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Axe Falls on Short-Term Loans


Sep 30 2008

Some banks decide not to roll over short-term loans; others will do it only at higher interest.The tight liquidity conditions have kept some banks from rolling over existing short-term loans to companies, especially public sector undertakings, once these loans mature.

Such banks, including the country’s largest bank, State Bank of India, have decided to reduce the flow of loans with tenure of up to 12 months and instead focus on sanctioned credit limits.

During the last 15 days, there has been intense pressure on banks’ resource management. At the same time, the cost of deposits has also shot up in the current quarter.

“This has forced banks to change the way they deal with the short-term credit business,” said the head of corporate credit at a large Mumbai-based public sector bank.

When there was surplus cash in the system, banks were offering short-duration loans (30-60 days) at rates in the range of 7-9 per cent. These rates were lower than what they charged for sanctioned credit lines.

Source:
http://www.business-standard.com

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