Loan rate hikes will not deter borrowers, says Bank of Baroda MD Sanjiv Chadha

(PTI) Amid lending rate hikes by several lenders, state-run Bank of Baroda's chief executive and managing director Sanjiv Chadha on Thursday termed the increases as "normalisation" in borrowing costs which will not deter loan seekers.

He also said that the corporate sector is in a better shape after the de-leveraging seen during the pandemic to absorb the rate hikes, and the economy will also handle the increases.

The comments come amid a rash of lending rate hikes by banks following a switch in rate strategy by the Reserve Bank of India (RBI) towards hiking, in a bid to tame the runaway inflation, which has been consistently breaching the upper tolerance band of the central bank.

The RBI has hiked its key rates by 0.90 per cent in two consecutive actions in the last 45 days, which has led to an automatic increase in the external benchmark linked rates and the banks have also hiked those under older systems like marginal cost of funding based lending.

"We are seeing normalization of interest rates and our corporate sector clients are strong enough to absorb its impact," Chadha told reporters on the sidelines of a conference organised by the IMC Chamber of Commerce and Industry here.

Speaking at the conference, he said a recent survey of 2,000 companies done by the state-run lender showed a large improvement in the interest coverage ratio for corporates.

Lenders are also better placed now to write the loans needed for economic growth, he said, pointing to higher provision covers and capital buffers that they possess now.

However, many experts have pointed out to challenging times ahead amid the surge in commodity prices due to geopolitical tensions and also opined that these challenges will be more difficult than the COVID pandemic, he said.

Chadha said we need to be "sanguine" about banks' ability to withstand the challenges and also their ability to support the economy by growing credit.

The bank is witnessing higher demand for loans which is definitely better than what it has seen in the last three-four years, he said, pointing out that demand from the steel and cement sectors is the highest.

Chadha said he is "cautiously optimistic" about the time ahead and reiterated that banks are better placed to handle the situation now.

The bank sees a higher demand from corporates, which constitutes half of the domestic advances, but retail growth will be faster, Chadha said.

It is also relying more on business correspondents while continuing to maintain its branch network, Chadha said, adding that a few years ago it had two Business Correspondents (BCs) for every branch, which has now gone up to five BCs per branch despite an increase in the number of branches to 8,000.

Speaking at the same event, private sector life insurer ICICI Prudential's chief executive N S Kannan said the insurance companies want longer maturity papers of over 50 years, which they are unable to get in the market and have been in touch with the stakeholders for the same.