Leading private sector banks have more or less matched state-run banks in fixing their base rates, with ICICI Bank and Axis Bank setting their rates at 7.5 per cent, the same as State Bank of India. HDFC Bank, the second largest private sector bank, has fixed a lower rate of 7.25 per cent.
Some smaller banks such as Dhanlaxmi Bank and IndusInd Bank have kept their base rate even lower at 7 per cent.
Thus, the base rate regime, to be implemented from tomorrow, will see a trend opposite in the benchmark prime lending rate regime.
Under the BPLR regime, the private sector bank rate was around 400 bps higher than that of government banks. However, in the new regime most private players have decided to keep their rate below the government banks. The new benchmark is cut by half of the BPLR by private banks.
| PRIVATE BANKS UP ANTE | ||
| Bank | Base rate (%) | BPLR (%) |
| *ICICI Bank | 7.5 | 15.75 |
| HDFC Bank | 7.3 | 15.75 |
| Axis Bank | 7.5 | 14.75 |
| IndusInd Bank | 7.0 | 16.75 |
| Development Credit Bank | 7.8 | 14.75 |
| Dhanalaxmi Bank | 7.0 | 15.75 |
| *ICICI Bank's benchmark for retail loans was 12.75 Source: banks | ||
Most of the large public sector banks like Punjab National Bank, Bank of Baroda and Union Bank of India have kept their base rate at 8 per cent.
Some of the private sector banks have taken short- term rates to arrive at the base rate. “We have taken a range of short term rates which include some rates which are at tenure less than six months and some proportion of two or three rates that we have taken that are indicative of short term rates,” said executive director of HDFC Bank Paresh Sukthankar.
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However, he said effective interest rates for the retail or the corporate sector would not be affected.
“Retail loans will not have a direct impact because of the base rate. The base rate defines the rate which obviously is the lowest, which would imply the shortest duration and the best credit quality. The base rate will be a reflection of what market rates are. Market rates on the lending side have been moving up in line with liquidity and in line with demand and supply issues,” Sukthankar said.
The base rate system will replace BPLR following a year-long exercise by the Reserve Bank of India to make lending rates more transparent. Among the parameters that banks can use to calculate their base rate include cost of deposits, overhead costs, costs of setting aside cash for maintenance of cash reserve and statutory requirements, and profit margin.