Yes Bank and IDFC First Bank are planning to increase their corporate lending again after previously facing issues with bad corporate loans. These banks had shifted their focus to retail and small business loans, but now they are gradually moving back to corporate loans.
Prashant Kumar, CEO of Yes Bank, explained that while they have been giving new loans, many old corporate loans have also been repaid, which led to lower overall growth in corporate loans. As they finish dealing with these old loans, they expect corporate lending to increase. Kumar mentioned that the bank aims to keep the balance of retail and small business loans compared to corporate loans at a ratio of 62:38.
During the time of former CEO Rana Kapoor, Yes Bank gave 60% of its loans to companies. However, after the Reserve Bank of India took over the bank’s board in March 2020 and implemented a reconstruction plan, Yes Bank diversified its loan portfolio.
IDFC First Bank is also balancing its loan mix between retail and corporate clients, with an 83:17 ratio currently. Five years ago, the bank primarily focused on corporate lending, but after a merger, it reduced this focus due to bad loans. Now, IDFC First Bank is cautiously increasing its corporate lending, with a focus on closely monitoring cash flows and maintaining conservative credit risk norms.
Both banks have higher costs of funds compared to their peers, around 6.5%, which may limit their ability to lend to top-rated companies that typically get better loan terms. Additionally, the RBI’s directive to increase the risk weights on unsecured loans has made corporate lending more appealing.
Yes Bank has seen a rise in bad loans in its unsecured retail portfolio recently, while IDFC First Bank has adjusted its capital to accommodate the new risk weights. Despite this, both banks see opportunities in corporate lending as demand for credit from companies is expected to remain steady, driven by working capital needs and potential mergers and acquisitions.
India Ratings noted that corporate demand for credit will likely stay low due to strong cash flows and the ability to raise funds through equity markets, keeping credit spreads tighter than usual.
Disclaimer: The views and investment tips expressed by investment experts on Sharepriceindia.com are their own and not those of the website or its management. Sharepriceindia.com advises users to check with certified experts before taking any investment decisions.
