Mumbai: Manglore-based Corporation Bank has decided to freeze its sub-PLR lending to corporates until liquidity conditions improve and Reserve Bank signals change in its policy stance.
The move is primarily aimed at protecting the margins in the wake of a high interest rate regime and rising cost of funds. The lender had seen a sluggish growth in the first quarter of FY 09 owing to provisioning made on account of the depreciation of its bond-portfolio.
“Sub-PLR lending is becoming irrelevant in the present context given the tight liquidity and high cost of funds. We have significantly reduced our sub-PLR loans. This would continue till the prevailing liquidity conditions change,” Coporation Bank’s chairman and managing director, B Sambamurthy told PTI here.
Corporate lendings contribute around 20% of Corporation bank’s lending portfolio while retail loans make up 25%.
Banks used to lend to big corporates coming with top ratings at much lower rates below the prime lending rate (PLR) with a view to woo attract more low-risk borrowings.
Many banks, including the country’s largest lender, State Bank of India has reduced its exposure to the sub-PLR loans once liquidity conditions tightened after RBI’s tightening liquidity in a bid to arrest inflation.