Corporate loans to get costlier

Faced with huge bad loan write-offs and a liquidity squeeze, big banks are about to increase interest rates on long-term corporate loans by 0.5-1 percentage points, reports Indulal P M.

India Inc is running into rough weather. The sub-prime crisis that emerged in the US about a year ago and developed into liquidity crisis in the wider economy, has finally hit Indian companies.

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Faced with huge bad loan write-offs and a liquidity squeeze, big banks are about to increase interest rates on long-term corporate loans by 0.5-1 percentage points, including existing ones.

“The hike will include all long-term corporate loans, including existing ones,” said a source.

While the private banks like ICICI Bank and foreign ones like Standard Chartered and UBS are expected to hike rates soon, others like Barclays and ABN Amro could follow suit.

Spokespersons of ICICI Bank, UBS and Stanchart did not reply to an e-mailed query. However, Brijesh Mehra, country head (corporate and investment banking), ABN Amro, said, “Generally, prices have gone up. So if there is any increase in rates, it is obviously connected to the existing interest pricing scenario.” However, Mehra denied any such move by ABN Amro in the immediate future.

“It is not a positive sign. I am not aware of the exact increase in rates. But, all the corporate houses are in an expansion spree and have borrowed and continue to raise funds from banks. Given the tough credit situation, a 50 basis point increase would be a disaster for Indian companies,” said Hitesh Agrawal, Head (equity research), Angel Broking.