While resisting pressures from companies to lend at low rates of interest, banks are

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instead choosing to park the excess liquidity of between Rs 45,000-70,000 crore with the Reserve Bank of India (RBI).

"Disagreements over the pricing of credit is forcing banks to park money with the central bank. Although short term capital is available at 8 to 9 per cent, banks do not want to be saddled with low rates of interest for the next two to three years on the long-term loans," said a senior Canara Bank official.

Punjab National Bank (PNB) is gradually phasing out sub-PLR (prime lending rate) loans, said Arun Kaul, chief general manager, PNB.

"Banks now have an upper hand in deciding interest rates. While liquidity is comfortable there is also a slack in demand for credit, resulting in the year-on-year credit growth falling way below the 29 per cent seen at the same time last year, " Kaul said.

Expecting the interest rates to fall in tandem with the inflation numbers, large corporate customers are pressurising banks to lend at 3-4 per cent below the PLR, which is at 11.50 to 12.50 per cent.

"Risk aversion to certain sectors is also resulting in the pile up of liquidity but certainly no bank now wants to be arm-twisted to giving rates being demanded by the borrowers. In an upswing, it makes sense to cut down on the margins and lend aggressively, but on a downswing, it is more prudent to hold on to cash," said a senior official from Bank of Baroda.

Banks are now lending above PLR for risky customers, while the good triple-A-rated companies can still get sub-PLR rates, banks are uncomfortable to excessively expand their credit.

"Though short-term capital is available at 8-9 per cent, banks do not want burdened with low-rates of interest for long term loans. But a few cash-rich public sector undertakings and some large corporate customers still manage sub-PLR loans," said the official from Canara Bank.

The caution to lend prudently is the top agenda for most banks. "We certainly are averse to lending to realty firms because the prices are crashing and banks are uncertain if the cash flows will be sufficient to repay the money. But for our good corporate customers, we lend at sub-PLR,” J M Garg, CMD of Corporation Bank.