The Reserve Bank of India (RBI) is not in favour of a multiple benchmark prime lending rate (BPLR) mechanism as proposed by bankers.
BPLR is the rate at which banks should lend to the more creditworthy customers, and factors in the cost of funds, factors in the risk, the operational cost and a margin.
Sources present at today’s meeting of the bankers’ panel, which is looking at ways to make the BPLR mechanism more transparent, said the suggestions from the bankers’ lobby, Indian Banks’ Association, on having two rates — one for corporate lending and another for retail loans — was difficult to implement.
However, corporate loans with a tenure of less than a year and housing loans could be kept outside the purview of the new reference rate mechanism, a source close to the discussions indicated. At a time when companies are reluctant to borrow, most corporate loans are for a tenure of less than a year.
The committee, headed by RBI Executive Director Deepak Mohanty, due to report at the end of the month, has asked banks to provide data on priority sector loans extended by banks. With nearly three quarters of the bank lending taking place below the BPLR, RBI had constituted the committee to make the system more transparent.
While the report is yet to be finalised, the committee may opt for having a base rate that will factor in the cost of one-year term deposits, the operational cost for raising current and savings account deposits, and a margin. While calculating the base rate, the cost of mopping savings and current account funds would be deducted.
“Banks can price their loans above the reference rate depending on risk premium, tenure premium on each category of loan. The longer the tenure, the greater the risk and so higher will be the rate,” said another banker.
Also read: Sept 9 : RBI frowns on sub-PLR loans, bankers resist
