The Reserve Bank of India's (RBI's) panel on revamping the existing benchmark prime lending rate (BPLR) will meet tomorrow for further deliberation with bankers.
The apex bank had formed a working group headed by Executive Director Deepak Mohanty in June to make the structure more transparent. It already had one round of discussion with bankers early this month.
In Early September, the group circulated a draft report among its members, where it was indicated that RBI was open to Indian Banks’ Association’s suggestion of having two sets of BPLRs for banks — one for retail lending and the other for companies.
The panel will examine the wide divergence in BPLRs of major banks. Currently, most banks’ BPLR range between 15.75 per cent and 11 per cent.
The panel is also expected to review the concept of BPLR and the manner of its computation. It will study the extent of sub-BPLR lending and why banks are resorting to such lending practice.
One public sector official said there was ample liquidity in the system and short-term rates were quite low. The credit offtake remained low. There was competition among banks and big companies with bargaining clout were able to get fine rate, he added.
More than 70 per cent of banks' loans on an average are sub-BPLR, which is reducing the transparency on lending rates among banks.
The panel is expected to finalise the report by end of this month and will submit its report to RBI. The panel has already received one extension. It was originally expected to submit report by August 31.
Bankers said the transparency in lending rates was necessary. Customers should get best price (interest rates) through competition and not by intervention of the regulator. Those with bargaining power get the best rate, at times leading to cross-subsidisation.
It would also suggest an appropriate loan pricing system for banks based on international best practices and review the administered lending rates for small loans up to Rs 2 lakh and for exporters.
It would also suggest suitable benchmarks for floating rate loans in the retail segment.
The rates would be computed on the basis of risk-based modelling and operating costs, said a banker. 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 was yet to be decided as RBI did not pay interest on these funds. Bankers have been seeking payment of interest on this money for long.
