Separate rates for retail, corporate customers likely.
Banks could soon have separate benchmark prime lending rates (BPLR) for corporate and retail borrowers with the rate for the latter expected to be a tad higher.
A committee appointed by the Reserve Bank of India (RBI), which met here today, is however expected to keep home loans outside the new regime. Bankers who attended the meeting said in the retail segment, where there were too many products with smaller ticket sizes, there was a suggestion that pricing for some categories like home loans could be dealt with separately.
The panel, comprising representatives from banks, was set up following an announcement in the annual policy statement in April on the need to bring greater transparency in pricing of risks by banks. At present, nearly 75 per cent loans are extended below BPLR. The committee is headed by RBI Executive Director Deepak Mohanty.
Bankers present at the meeting said there was a broad agreement on the need for separate prime lending rates for corporate and retail borrowers. But the final view was yet to be taken, they said.
“In the discussions today, the problem of housing came up. Should housing be kept out of the prime lending rate. Similarly, there were discussions over facilities below Rs 2 lakh,” said Indian Banks’ Association’s Chief Executive Officer K Ramakrishnan. The committee’s report is expected to be finalised later this month.
Though banks in India have a single BPLR, ICICI Bank has separate benchmark rates for corporate and retail customers. While the floating reference rate, used for retail loans, was fixed at 12.75 per cent, the bank’s benchmark advance rate was revised to 15.75 per cent in June.
At present, BPLRs of banks range between 11.75 per cent and 15.75 per cent.
“The rates will be computed on the basis of risk-based modelling and operating costs,” said a banker present at the meeting. Computation of the base rate was another area that was discussed in detail. Though bankers suggested that banks should factor in the cost of funds set aside for meeting statutory liquidity ratio (SLR) and cash reserve ratio requirements, RBI turned down the proposal related to SLR holdings.
The cost of deposits, the borrowing cost as well as the opportunity cost of keeping funds to meet the cash-reserve ratio (CRR) norms could form the basis for calculating the base rate, bankers said. However, the indicative rate for CRR is yet to be decided as RBI does not pay interest on these funds. Bankers have been seeking payment of interest on this money for long.
Typically, banks add the cost of providing service and the cost of covering risk to the cost of funds while fixing rates.
While the BPLR mechanism might undergo a change, bankers said sub-BPLR lending was here to stay. Bankers were of the view that the rates would depend on liquidity conditions.
“Sub-PLR lending will depend on liquidity and demand for money. There will be some sub-PLR lending in a highly liquid market,” said a banker.
Punjab National Bank is the only lender in the country that has went on record saying it will not lend below BPLR to its corporate customers. PNB has the lowest BPLR (of 11 per cent) among commercial banks.
