A recent press report said that the loan requirements of large corporates are growing faster than the ability of large banks to raise capital. Corporates including Reliance Industries, HDFC, Bhel and Indian Oil, are hitting the credit limits of various banks.
Reports said that banks lending to individual entities are limited by single borrower exposure limit and that the single borrower limit is arrived at based on 15% of the net worth of a bank. In certain cases the regulator has allowed banks to lend an additional 5%. However, violations in the ceiling have to be reported by banks in their annual report.
Reports also said that companies like Reliance Industries, HDFC, and Bharat Heavy Electricals Limited are regularly touching the exposure limit with banks but the list of the companies with large borrowing requirements is growing.
Recently Air India, is facing liquidity problems, due to its borrowing maximum amount with Central Bank of India. LIC Housing Finance, which has been growing faster than the mortgage industry, has resorted to large-scale borrowing from banks. The corporates requirements for loans are thus rising faster than the capacity of large banks to raise capital.