Bank of India targets lower-rated corporate borrowers for profits

A state-run bank in India is changing its lending strategy to attract lower-rated corporate borrowers. The Bank of India is normally cautious and lends primarily to companies with high credit ratings, but now it will also target those rated 'BBB' or 'A'. This shift comes as profit margins are under pressure due to a recent interest rate cut by the Reserve Bank of India. The bank's chief executive, Rajneesh Karnatak, explained that companies with the highest credit ratings can negotiate better lending rates, making it challenging for banks to maintain their profit margins. According to Karnatak, there is intense competition among banks to secure top-rated companies as clients. As a result, the Bank of India plans to diversify its lending to include lower-rated companies. Currently, the bank has a majority of its corporate loans rated 'A' and above. However, as the net interest margin declines, the bank is exploring options to lend more to 'BBB' and 'A' rated firms that could offer better interest rates and commissions. Karnatak stated that while they will continue to lend to top-rated companies, the bank must be selective to avoid harming its profits. Analysts note that only a small fraction of companies have the highest ratings, making it necessary for banks to look at a broader range of borrowers. Additionally, there has been a recent increase in corporate bond issuances, indicating that many companies are raising funds directly from the market rather than through bank loans. The overall demand for corporate loans has been slow, but there are signs of growth. Retail loans have seen significant increases, highlighting a shift in the borrowing landscape. Despite the challenges, the Bank of India is moving forward with its strategy to lend to lower-rated corporate clients while managing its overall risk.