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Will Nirav Modi scam hurt loan raising plans of mid, small size firms?

While Nirav Modi and the Rotomac scams have shaken up the Indian banking system, the corporate in the country, at least the mid and small size companies, are feeling the pinch as the banks are not only re-verifying loan approvals but delaying disbursal.

The picture for representational purpose. The picture for representational purpose.

While Nirav Modi and the Rotomac scams have shaken up the Indian banking system, the corporate in the country, at least the mid and small size companies, are feeling the pinch as the banks are not only re-verifying loan approvals but delaying disbursal. The public sector banks (PSUs) have suddenly increased the scrutiny; the 'loss of faith' has started surfacing between banks and companies. Large private banks are using this opportunity to attract the corporate clients of PSUs, but loan disbursal is still an issue, say executives in companies.

An executive with a midsize Gujarat-based company says he had Rs 120-crore loan approvals from two banks for the working capital requirement, but the scams have delayed the actual disbursals, thereby affecting the company's operations. "Depending upon the size of the balance sheet and quality of the assets, the banks sanction the corporate loans. But the banks and its employees have become suddenly sceptical about the corporate clients. It's a clear case of loss of faith," he says.

"There has been a great disruption in the banking system since demonitisation. NPAs have pushed the banks to the wall. The impact of the scams is yet to be gauged but it will be quite substantial in the corporate world," says CEO of a midsize bank.

Also, at bank branches, executives are trying to distance from the scam, citing it as an odd incident, which happened because of the internal problem of Punjab National Bank (PNB).

In fact, the manufacturing companies have been facing difficulties in getting loans since 2013. "Even if you get the loans, the interest rates were high. In addition, the demand for the products had been consistently falling in that period and it made the loan repayments difficult. We were just coming out of the issue when the scams broke out," says a CFO of Mumbai-based company.

The mass transfer in the PSU banks is another issue that delays loan-sanctioning process. The Central Vigilance Commission (CVC) on Monday directed all the public sector banks to transfer the officers who have completed three years at a branch as on December 31, 2017. PNB has transferred close to 18,000 employees, or 25 per cent of its total staff, in the past three days.