Banks are reducing loan tenures on doubt over interest rate outlook. Uncertainty on interest rates and competition among banks are compelling lenders to provide for the short term and introduce interest rate reset clauses that is likely to start to start in coming three months.
Companies are trying to get a loan sanctioned from larger players such as State Bank of India, and using it to negotiate a better deal from another bank, especially smaller public sector and private banks. As a result, the larger players have started opting for short-term loans.
"The ticket size is small because there is little demand for the loans for capital expenditure. So, there is little choice but to give short-term loans or put in other clauses," said a senior executive with a public sector bank.
Banks typically reset interest rates after a year, but are now exercising the option as early as three months, though in some cases the review of the rate takes place after six or nine months, the executive director of a mid-sized public sector bank said.
Companies are trying to get a loan sanctioned from larger players such as State Bank of India, and using it to negotiate a better deal from another bank, especially smaller public sector and private banks. As a result, the larger players have started opting for short-term loans.
"The ticket size is small because there is little demand for the loans for capital expenditure. So, there is little choice but to give short-term loans or put in other clauses," said a senior executive with a public sector bank.
Banks typically reset interest rates after a year, but are now exercising the option as early as three months, though in some cases the review of the rate takes place after six or nine months, the executive director of a mid-sized public sector bank said.
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