Big Business supports Big Banks who support Big Government ... all of whom depend on us to to fund them ... (Cartoon by Alex Hughes; courtesy - http://alexhughescartoons.co.uk). Click for larger image.
Country’s largest bank SBI has breached RBI’s credit exposure norms during three consecutive years with regard to its loans provided to Mukesh Ambani-led Reliance Industries Ltd (RIL).
This is the third straight year when SBI has exceeded the single-borrower ceiling with regard to RIL, as per the bank’s annual reports for the past three financial years.
However, the bank brought down its exposure to RIL within the limit on the last date of the previous fiscal, i.e March 31, 2011, according to the SBI annual report.
The public sector lender had provided credit in excess of prudential norms to RIL during 2009-10 and 2008-09 also.
During the year 2009-10, the bank’s credit exposure was in excess of prudential limits for Reliance Industries, Indian Oil Corp (IOC), BHEL and Tata Group.
As per RBI guidelines, the exposure ceiling limits are 15 per cent of capital funds in case of a single borrower. However, the credit exposure to a single borrower can go up to 20 per cent, if the additional 5 per cent exposure is on account of extension of credit to infrastructure projects. (via SBI breaches RBI norms on loans to Reliance – Times Of India).
Follow the leaders
A few days later another report showed that ICICI, the second largest bank in the country is also in the same boat. SBI and its subsidiaries are slightly less than 25% of the Indian banking industry. ICICI is less than 10%. Together these two banks are 30%-33%of the banking industry.
Four companies are getting more than 15%, i.e. 60% of the total lending by SBI – and one company in case of ICICI. The report also confirms that there was window dressing. Borrowings were brought down to RBI norms on the day of reporting. We are not even started on the Birla groups, the Essar, Adani group, L&T, plus other public sector companies.
Behind closed closed doors or out in the open. Reliance alone gets more money from SBI and ICICI than Indian agriculture sector. (Cartoon by Adam Zyglis - Courtesy of Politicalcartoons.com). Click for larger image.
Sense of priority
Priority sector lending target has been fixed as a percentage of total lending. Banks are targeted to lend 18 % of their lendings to agriculture and 12 % of their NBC as export credit.
Just Reliance alone gets more money from SBI and ICICI than the entire agricultural community in this country – or the exporters.
Presumably this a pattern with the banking industry. Larger business groups get larger amounts of funding – and the smaller customers get the leftovers.
I am not using oligarchy as an adjective anywhere, at all.
Points of view
For banks, the cost of doing business with an RIL, BHEL or a IOC is that much cheaper – because costs of servicing these accounts are not equal to the costs of servicing small clients. But then, the margin from these lendings is also well below average lending rates. So, overall, it is unclear, if it is just laziness or a government policy or good business practice.
There is a place for Big Business in India – but can Big Business replace Indian agriculture or the exporter segment.