Short – term loans to corporate houses are being held back by the State Bank of India and other prominent banks in the country to tide over the liquidity crunch. This means that if a corporate has a drawing power of Rs. 150 Crores and the bank’s loan outstanding to the company is Rs. 100 Crores, the balance amount of Rs. 50 Crores will not be disbursed immediately.
Earlier, corporates could avail an amount up to their full drawing power. But now, they may have to hold on to their financial need until the liquidity situation eases off itself.
The RBI has instructed banks to hold off distribution of any new personal loan or any loans, as a result of which banks have cancelled their festive loan schemes. The RBI has also notified banks that they should only lend the money that they can raise as deposits, as market borrowing by banks is typically short-term and can land the banks in a destructive liquidity squeeze.
Banks however claim that the rise in the number of loans being distributed is solely because of an increase in the demand for loans from corporates and other enterprises. Banks have also offered large loan amounts to companies facing a resource crunch, due to the rising cost of the dollar.