jeevan
adhey daan!

i get your points. i also know that financial institutions have their own crew as directors etc in the company to which they provide loans. i don’t deny that.
And yeah i did try to equate consumer loans with industrial loans.

my point is, from an economic health perspective, credit offtake to industrial houses or to someone to start an industry has more impact than say unleashing consumer loans to travel abroad etc.

regarding risks, if banks consider consumer loans as riskier then are they not better off sanctioning loans to corporates? i am rather curious to know about the role of multinational banks in this scenario. any idea of the mix of industrail credit to consumer credit?

am not saying MNC banks r villains. i just wanted to debunk the notion that they r here to provide loans to consumers to sustain economic grwth blah blah.
i am saying it makes much more business sense for them to give loans to conusmers for short terms at exhorbitant rates than give loans to industrial houses for long term.

Regarding credit rating agencies, well am not good enough to argue on that. need to read more.

You are equating industrial loans with consumer loans. To me, plain and simple, risk determines the interest rate. It does not matter if you are a industrial borrower or a consumer. There are high risk industrial borrowers, and who have to literaly sweat out to raise capital. Agencies like CRISIL(hope I am right), Moody’s, S&P, and others routinely rank industries based on risk. Recently, industrial giants like General Motors and Ford Motors were reduced by the lending agencie to ‘junk’ status. What does it mean? If they go back to the captial market or banks to borrow money, they have to pay a huge premium to coax money out of lenders. Pretty pathetic!!

Another point is that industrial loans are not simply money transactions. Depending on the structure of the loan and the risk, the lenders take stake in the company. Good example is Venture capaitalists. They do provide money, sometime, without any interest or traditional money lending structures. However, they do get equity stake in the company and aggressively work on making the venture success. That is how, they are get their returns.

I am sure this topic can be expanded and further clarified.. However you get the point.. Interest rate is very much associated with risk. If there is a risk of default, you mitigage the risk with either higher interest rate, collaterals or any other financial means to secure your capital. Government weighs using their monetary levers of RBI with their control on interest rates and fiscal levers like tax policies, grants etc.

regards
-CV