Meaningful Minutes

Large borrowers to find it tough to borrow:

Large corporates borrowed just 58% of the total loans offered by banks but accounted for 86.4% of the bad loans. Banks seem to have noticed this trend. More banks have tightened borrowing rules for large borrowers. 44% of the banks surveyed tightened their credit standards in the first half of 2016. This is more than the last survey which saw 35% of banks change the norms. Most of the banks said this was because of the rise in bad loans and higher sector-specific risk.

Easier rules for SMEs:

At the same time, 16% of the banks eased lending rules for small and medium-sized companies. Only 5% of the banks made borrowing difficult.
"Banks that eased credit standards for SMEs reported higher expectations of economic growth in the economy," the survey reported. This, though, is lower than the last survey for the July-December 2015 period. 24% of the banks had eased their standards for SMEs, as per the older survey.

Shift to retail borrowers:

Banks are concentrating more on retail borrowers than earlier.
However, corporate lending still continues to account for more than half the money banks lent. "During the period January-June 2016, 56% of the participating bank's lending portfolio was directed towards corporate lending against 42% for retail lending," the survey reported. The shift to retail borrowers can be seen in the fact that only 38% of the money was loaned to retail borrowers in the previous survey.

Infrastructure leading the way:

Loans can be a good indicator of investments and growth.
Infrastructure continues to see the most amount of investment if you go by loan statistics. 56% of the banks reported high demand for loans in the survey period. That said, auto components and food processing industries too have high demand. This could be why infrastructure's share fell from 65% in the previous survey. "Other sectors expected to see higher demand for long-term credit as per survey findings include renewable energy, pharmaceuticals, textiles and real estate," the survey said.

It also has plenty of bad loans:

Another reason for infrastructure's lower share in overall loans could be its poor track record. The sector accounts for the second-most amount of bank's bad loans compared to other sectors. "80% of the respondents indicated metals, Iron & steel as one of the sectors with largest levels of NPAs in their banks, followed by infrastructure (70% respondents), textiles (65% respondents), food processing (30% respondents)," the survey said.

Lowering deposit rates:

As inflation falls and RBI cuts rates, interest on deposit to comes down. This has been the trend in the first half of 2016. 60% of the banks surveyed cut short-term deposit rates while 70% of the banks lowered their interest rates on long-term deposits. This mimics the RBI's rate cuts as well as the government's lower interest rates on savings schemes. As a bank shareholder, this should be good news for you. Banks earn by charging a high interest on loans and promising a lower interest on deposits. Lower deposit rates can mean higher profit margins. Moreover, this can help make up for the bad loans.

Rise in CASA deposits:

The lower deposit rates have not affected people keeping their money in banks. 75% of the banks reported a rise in their CASA deposits while 25% of the banks reported a 'significant increase'. This is good news for banks. CASA stands for Current Account and Savings Account.
Such deposits are a cheap source of funds for banks-at least cheaper than borrowing from the RBI or other banks.