Less than 10 days from on Tuesday, there could be a paradigm shift on how loans will be priced. Yet, not a single bank has announced their benchmark rate or the base rate for loans. The Reserve Bank of India (RBI) had asked banks to implement base-rate lending from July 1.
State Bank of India (SBI), the country’s largest lender with about 17 per cent of the loan market, was expected to take the lead. A confident SBI top brass had said in early June that the bank had almost decided on the rate and would announce it before June 15, so that it has at least two weeks to familiarise its ground staff about the new regime.
A senior SBI official said on Tuesday that an announcement was not likely before Wednesday or Thursday. So, what is holding SBI back? The bank said the regulator should clarify a few issues like farm loans and export credit interest rate once the base-rate regime is introduced.
However, its competitors have a different take on this.
At an informal meeting among a few public sector banks in early June, SBI was understood to have indicated a base rate of 7.5 per cent. “By doing that, SBI was running the risk of being out of sync with the rest of the market,” said a senior executive of a large public sector bank.
Bankers said when SBI realised that it might not be able to keep its rate as low as 7.5 per cent while others was indicating an 8.5 per cent mark, it wanted to re-visit the issue once again. In addition, little or no information on what the largest private sector lender, ICICI Bank, is thinking made things more complicated for SBI.
If the market buzz is to be believed, private banks are expected to have a lower base rate than its government-owned counterparts, at around 6 per cent. Most of the public sector banks wanted SBI to take the lead and were in agreement that SBI’s rate was going to be the lowest with the others having 25-50 basis points band above the SBI rate.
SBI had lost its position as the leader offering the best industry rate to Punjab National Bank — that had gone for aggressive BPLR cuts — in early 2009. However, the country’s largest bank is expected to get back the status in the new regime. Most banks have already prepared three or four alternatives taking different sets of cost of funds. They are awaiting an SBI decision to announce their game plan.
