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Monday, November 10, 2014

Central Bank cuts size of corporate loans

To rein-in bad loans, Central Bank of India has drastically cut the ticket size of loans it gives to India Inc.

The public sector bank has capped fresh loan exposure at Rs 150-200 crore per company as against
Rs 300-400 crore earlier.

The bank has also pared its corporate loan exposure by
Rs 13,797 crore in the last one year.

Instead, it has focused on giving loans to the non-priority sector such as agriculture, retail, and micro and small enterprises (MSE).

“This (curtailing the ticket size of loans to companies) is a risk mitigation measure. We are not renewing low-yielding short-term loans,” said BK Divakara, Executive Director.

The bank believes multiple smaller loans, as opposed to a few large corporate loans, can reduce the risk of bad loans.

The bank’s corporate credit portfolio has come down from
Rs 1,13,573 crore in September-end 2013 to Rs 99,776 crore in September-end 2014.

According to Executive Director Raj Kumar Goyal, Central Bank has taken a conscious decision to focus on non-priority sector loans. This has also helped correct the earlier skew in the bank’s loan portfolio towards corporate loans.

Corporate credit accounted for 53.55 per cent of total loans in the September 2014 quarter, as against 63.58 per cent during the corresponding quarter last year. Agriculture loans account for 17.89 per cent of total loans (12.73 per cent as on September-end 2013); retail accounts for 16.24 per cent (13.37 per cent); and MSE account for 12.32 per cent (10.33 per cent).

Rajeev Rishi, Chairman and Managing Director, said after his bank posted a huge loss of
Rs 1,509 crore in the second quarter of FY14, it undertook course correction, focusing on recovery from bad loans, increasing retail credit and mobilising low cost deposits.

In the second quarter ended September 30, 2014, Central Bank saw a turnaround in its fortunes, reporting a net profit of
Rs 103 crore.

Year-on-year bad loans, in gross terms, edged down to
Rs 11,440 crore as against Rs 11,563 crore during the corresponding quarter last year.

Source : The Hindu


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