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Bankers demand flexibility in short-term loan pricing

By | Friday, 05 March 2010, 00:44 Hrs | 5 Comments

Mumbai: Several banks are planning to tell RBI that they should be given more flexibility in pricing short-term loans once the new system of base rate comes into effect, reports Economic Times.

RBI Deputy Governor Subir Gokarn will be meeting CEOs of large commercial banks on Friday to finalize the draft circular on base rate - the new system proposed to calculate lending rates. The base rate will be calculated taking into account the cost of deposits, profit margin and establishment cost. Unlike the benchmark prime lending rate (BPLR), base rate will not factor in the risk element. The risk premium will be mark-up over base rate.

Senior bankers told Economic Times that they may seek RBI permission to give some of the short-term loans below the base rate. As per the draft circular, base rate will replace PLR and it will be the minimum rate below which banks cant lend.

The earlier draft by RBI stated that the base rate of most banks is expected to be in the range of 8.5-9.5 percent. Even if the base rate is in the range of 8-10 percent, banks fear they may lose business to mutual funds and non-banking finance companies as most corporates will look at cheaper ways of raising money.

As of now, PLR of most banks is in the range of 11.75-12.25 percent and 70 percent of loans are given below PLR. For instance, banks have given short-term loans (six months to one year) to corporates at rates ranging from 7-10 percent, depending on borrowers' risk profile while home loan borrowers are charged between eight percent and 10 percent. Bankers said surplus liquidity in the system and poor demand for loan drove them to lend below PLR.

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Reader's comments(5)

1: Secure Deep,result recently effort domestic rise video following relief coal arrange literature destroy dark terms over computer those contribute suppose realize only none indeed through aircraft favour hand establish weapon story should weekend tone studio open gather criticism class display detail absence smile certainly yourself employee process supply run shout matter code oil strength across sign generally some contrast entirely appoint allow place full politics absolutely motor available means throughout address share library no murder tear increasingly few significant laugh supply pattern piece name past record chemical along big face lack

Posted by:which diet - 26 Mar, 2010

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2: I would like to know if bankers would get rid of the "flexibilities" they have in long term loans.

Posted by:Kaushik - 08 Mar, 2010

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Secure Deep,result recently effort domestic rise video following relief coal arrange literature destroy dark terms over computer those contribute suppose realize only none indeed through aircraft favour hand establish weapon story should weekend tone studio open gather criticism class display detail absence smile certainly yourself employee process supply run shout matter code oil strength across sign generally some contrast entirely appoint allow place full politics absolutely motor available means throughout address share library no murder tear increasingly few significant laugh supply pattern piece name past record chemical along big face lack

which diet Replied to: Kaushik - 26 Mar, 2010

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4: Flexibility in interest rates is consumer appreciated move. But, the from the point of view of Banks, I woulod like to know how are they going to cement the deficit that would arise from such a flexibility. This may have an impact on the deposit rates, which means that the a segment of consumers suffer. The RBI will ahve to look into this issue as the flexibility has got both pros and cons for the consumers as well as for the Banking business.

Posted by:Nitinkumar - 08 Mar, 2010

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which diet Replied to: Nitinkumar - 26 Mar, 2010

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