A big refinery, a large loan, and a bunch of eager banks

Mumbai: India’s top lenders are falling over each other to finance a ₹39,000 crore refinery being set up by Chennai Petroleum Corp. and Indian Oil Corp. in Tamil Nadu, in one of the largest corporate loan deals in recent times.

State-owned banks like State Bank of India (SBI), Bank of Baroda (BoB) and Punjab National Bank (PNB) are among six lenders which have bid for the loan, two bankers aware of the development said. Of the ₹39,000 crore, 70% or about ₹27,000 crore would be debt, and the rest equity.

Established in January 2023, Cauvery Basin Refinery and Petrochemicals Ltd (CBRPL) is planned as a 75:25 joint venture between Indian Oil Corp. Ltd and Chennai Petroleum Corp. The proposed nine million tonnes per annum (mtpa) refinery will come up at Nagapattinam.

The loan's interest rate is likely to be linked to SBI’s three-month marginal cost of funds-based lending rate or MCLR, the two people cited above said on the condition of anonymity. Following a recent revision, SBI’s three-month MCLR now stands at 8.55%.

“It will also have a spread over the MCLR rate, but pricing details will be available later,” said the first banker cited above. “There is a lot of demand for public sector projects, and we have seen banks trying to corner as much as possible, given the low risk profile of such projects.”

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SBI has bid for the entire loan while others have put in bids for smaller chunks, one of the two bankers said.

“This is not similar to projects where SBI has underwritten the whole loan and then downsold it to other lenders. This is a bidding process where allocations would happen later, and many banks have already lost out on the opportunity,” said the second banker, also on the condition of anonymity. He said the loan is expected to have a fine pricing since the project is backed by a state-owned company.

Emails sent to Indian Oil, Chennai Petroleum, SBI, PNB and BoB remained unanswered.

Interest in the mega loan comes at a time banks are trying to make up for the decline in retail loan demand following regulatory diktats around unsecured loans. Aggregate retail loan growth dipped 13.4% year-on-year (y-o-y) in September, against 30% last year. On the other hand, credit to industries—small, medium and large—grew 8.9% in September, up from 6.5% in the same period last year.

“Given the slowdown in the retail lending segment, banks may actively pursue opportunities in corporate credit, even if it comes at finer yields,” said Anil Gupta, senior vice-president, co group head of financial sector ratings, Icra Ltd.

Accordingly, bank credit flow to corporates is expected to improve, although they will face significant pricing competition from the debt capital markets for highly rated corporate entities, added Gupta.

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Bankers have been waiting for a revival in corporate loan demand for several quarters now. While there has been some pickup, there are several more in the pipeline. For instance, SBI has a corporate loan pipeline of ₹6 trillion, comprising loans that have been approved but are yet to be disbursed or availed of. Its corporate loan book grew 18.4% y-o-y in the three months through September to ₹11.6 trillion, at a faster clip than its overall loan book.

Ashwini Kumar Tewari, managing director, corporate banking and subsidiaries, at SBI explained how the bank managed this corporate loan growth.

“(For the) last one and a half years, they (my team) have been planning for this, contacting corporates, understanding their business plans, and actually trying to fit in where we can. Therefore, we approach them much before time,” Tewari told analysts on 8 November.

“This is all about conversation and being in the right place, and we expect to see good growth in this (corporate loan segment). Of course, we are selective; we don't want to compromise on asset quality at all.”

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