Bank chiefs, IBA fail to concur on uniform PLR

Bank chairmen failed to reach a consensus over the formulation of a single benchmark prime lending rate (PLR) at their meeting held with the managing committee of the Indian Banks' Association (IBA) in New Delhi today.

The single benchmark PLR was proposed by the IBA along the lines of the statement made in the monetary and credit policy review by the Reserve Bank of India.

Sources added that the IBA committee will further re-examine the issue of formulation of PLR and take a closer look at the implications it will have on the existing lending procedures, most of which are not linked to the PLR.

IBA had proposed a cost-based single benchmark PLR whereby each bank will publish a single PLR which will take into account various cost components like operating costs, asset and liability costs, term premiums, interest rate risk, profit margin, capital charges etc.

It was proposed that loans outside the purview of PLR will be kept separate but instead of having multiple PLRs, there will be only one PLR.

However, under this norm, each bank will be free to decide on the spread above the PLR.

This was expected to reduce the anomaly in the loan market as once a PLR for a bank is defined, it cannot violently swerve when deciding on the rates to offer for loans.

Bankers are of the view that the issue should be once again re-examined as various loans such as those for home and retail are out of the PLR ambit and it is only the cut-throat competition in the home loans segment that have spurred calls for a single PLR.

Moreover, there are some clients who take sub-PLR rates. Therefore, a need was felt to look into the matter from a more practical perspective, it was felt.