Tuesday, November 14, 2006


As a consequence, there is a very high probability that the Indian banking sector will be seeing an upsurge in defaults. Ajit Dange, Assistant Vice President (Research), UTI Securities comments, “The banking sector will see an uptick in the loan default rates as the weaker companies in each industry will not be able to withstand competition and increased margin pressures.” Furthermore, the ill effects of this development on the economy could take the form of a growth hampering credit tightening by the central bank. Risk weights are being increased by RBI for different risk prone sectors; and the current deterioration in the credit quality might just exacerbate this process. Even the cost of credit might go up, which is discouraging for the Indian corporate houses and their creditdriven expansion plans. As Dange further comments “These steps (discussed above) will reduce the credit flow to the corporate sector... The cost of credit will also increase further.”

Bank credit to corporate sector almost doubled to Rs.1,221.65 billion in 2006 from Rs.620 billion in 2005. The greed of bulk fund requirements by corporates has enticed banks, which are willing to part with their funds even at lower interest rates and some are even ready to compromise on pre-credit sanctions appraisal, so as to gain quick market share, which in turn is a direct outcome of fierce competition in the sector.

For Complete IIPM Article, Click on IIPM Article

Source : IIPM Editorial, 2006

An IIPM and Management Guru Professor Arindam Chaudhuri's Initiative

Rashmi Bansal Publisher of JAMMAG magazine caught red-handed, for details click on the following links.

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