Banks are facing problems with a pile of unused sanction loans. In the last one and a half months banks have sanctioned a lot of loans but their actual disbursement is far less. The reason behind this is borrowers have started considering other sources for funding like commercial paper (CPs) and are therefore not using the sanctioned loans fully.

In case of term loans, banks are facing longer gestation period for loan disbursal since most of the loans this time are for long-term infrastructure projects. Thus banks have ended up lending Rs 29,000 crore in October this year as against a whopping Rs. 1 lakh crore in the comparable period a year ago.

According to bankers, total loans sanctioned stand at around Rs. 2 lakh crore. They say that if banks disburse 10-15 percent of their sanctioned limits there would be a considerable pick up in credit.

Amongst big corporate, commercial paper has become the most sought after means for raising capital. Funds raised through CPs costs a company with good credit history around 5 percent while bank loans cast around 8-10 percent.

The slump in credit disbursement has caused trouble for the banks. Due to this slide, many of these lenders are forced to lend at rates less than their cost of funds putting pressure on their net interest margins.

An official from a Mumbai-based public based bank said that it was better to deploy the fund somewhere instead of keeping it idle.