Bank of Baroda (BoB) has secured a major ₹5,000 crore loan deal with state-owned steel company SAIL, outbidding other large public and private sector banks.
BoB offered the lowest interest rate of 7.49% for a five-year loan, which is linked to the 364-day treasury bill, according to sources familiar with the deal.
“All major public and private sector banks competed for this loan because SAIL is a government-owned Maharatna company, meaning it carries almost no risk. However, BoB’s bid was very competitive and much lower than the others,” said a person with knowledge of the details.
In deals like this, companies typically invite bids from various lenders, with the lowest bidder usually winning. Although the bids are submitted in sealed envelopes, all participants are informed of the bids once they are opened. SAIL plans to use the loan to fund its capital expenditures and working capital needs, with the funds being available in multiple installments over the next few months.
“AAA-rated deals like this are highly competitive. BoB’s bid suggests that the bank was more interested in expanding its loan portfolio rather than making a profit from this deal. At this interest rate, it’s tough to make money, especially when deposit rates are high,” said another person familiar with the deal.
Neither BoB nor SAIL responded to requests for comment. BoB was chosen as the lender earlier this month. The Reserve Bank of India’s (RBI) weekly auction of the 364-day treasury bill in early August had a cut-off rate of 6.73%, meaning BoB’s loan was priced at 76 basis points above this benchmark. For context, BoB’s average lending rate in the first quarter of the fiscal year was 8.55%.
Considering the bank’s average deposit cost was 5.06% at the end of June, the profit margin on this loan is about 243 basis points, which is lower than the 318 basis points margin the bank recorded at the end of the first quarter.
Loans to state-owned companies like SAIL also carry lower risk weights, making them more attractive for banks to finance.
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