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MUMBAI : State Bank of India (SBI) is counting on renewed interest from corporates for credit offtake as rising bond yields make market borrowings more expensive.

With the interest rate cycle turning because of soaring inflation, bond yields have hardened in recent months, pushing up overall borrowing costs of companies in the debt market.

However, bank lending rates to companies have not moved in tandem since these are benchmarked to individual banks’ marginal cost of funding-based lending rate (MCLR), an internal benchmark with slower transmission.

Corporate bond spreads over the 10-year benchmark government securities have also widened in the last three months.

For instance, an AAA-rated corporate borrower had to borrow at a spread of 36 basis points (bps) above the 10-year government bond on 3 August, up from 1 basis point on 2 May, according to data compiled by CARE Ratings.

The yield on the benchmark sovereign bond has climbed 10 bps in the same period. In comparison, the median one-year MCLR of banks rose 30 bps between May and July, according to RBI data. One basis point is one-hundredth of a percentage point.

“Capacity utilization in the economy is at about 75%, and we have got a situation where we expect more corporates to be looking at us for availing credit facilities as compared to options available in the past for raising funds from the securities market," SBI chairman Dinesh Khara told reporters on Saturday.

Khara said a large portion of loans sanctioned to corporates is yet to be utilized. On the working capital front, it is as high as 49%, and 26% of term loans have not been used, taking the quantum of such loans to 5 trillion.

“Apart from that, we have got a decent pipeline of almost 1.2 trillion that clearly indicated the likely growth we are going to witness on the corporate side," said Khara.

SBI’s corporate loan book grew 10.6% from a year earlier to 8.74 trillion as of 30 June, accounting for 35.7% of its total advances.

Infrastructure lending is a large component of corporate loans at India’s largest lender and, at 3.57 trillion, accounted for 14.6% of the bank’s total domestic loans.

Khara said the bank witnessed corporate loan growth from sectors such as power, roads and ports.

“In telecom, we have got Reliance Jio. In petroleum and petrochemicals, we have seen decent growth. In aviation and airports, again, we have seen decent growth; and also to very well-rated non-banking financial companies," Khara said.

While there are corporate credit opportunities in the market, banking experts have been highlighting how some lenders are being ultra-competitive, undercutting rivals and mispricing risk in the process. Mint reported on 30 July that leading private sector banks are taking a step back from some segments of the corporate loan market, citing intense competition, as their state-run peers aggressively woo large borrowers with cheaper rates.

In September, Khara highlighted the issue of mispricing in the corporate loan market when interest rates were significantly low. On Saturday, he said mispricing has somewhat declined.

“But perhaps till such time people are saddled with excess liquidity on their balance sheets, they might resort to this. So, we are mindful of maintaining the net interest margins and are ensuring there should not be any mispricing of risk," Khara said.

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