Mumbai: The multiple prime lending rate (PLR)
system with a cap on advance rates, which are likely to be
recommended by a Reserve Bank panel, would bring more
transparency in the lending operations, bankers said.
"This (a ceiling on the sub-PLR advances) is a welcome
move. Capping the sub-PLR loans will help to avoid undue
competition in the market. There will be more transparency and
relevance to BPLR mechanism in the industry," Union Bank of
India DGM Corporate Banking R G Kelkar told a news agency here.
At present larger banks, with deep pockets, woo prime-
customers offering loans at very lower rates, thereby putting
pressure on their smaller competitors.
Discriminating pricing of wholesale and retail loans will
help to develop more customer-confidence. The double-PLR
system will also help banks to price their advances in a
better way, Kelkar said.
The RBI panel, headed by RBI Executive Director Deepak
Mohanty and comprising external experts and Indian Banks
Association, is understood to have mooted two PLRs — one for
retail and one for wholesale borrowers in its draft report —
which is most likely to be inducted in the final report.
The RBI-group is likely to submit its report to apex
bank Governor, D Subbarao by the end of this month.
"There is a possibility that banks may maintain their
retail PLR at around 12 per cent. Ideally, the wholesale
benchmarking could be 200-300 basis points below this," Kelkar
said.
The RBI constituted a special working group to revisit
the existing BPLR structure in July to bring more transparency
and uniformity in the manner in which banks arrive the BPLR.
Kotak Mahindra Bank's head retail liabilities K V S Manian
said many private sector banks already have the system of
double BPLRs and a regulation in this effect is unlikely to
result in any major impacts in the industry.
"This is not going to cause any major changes in the
market, as banks will adjust their PLRs in such a way not to
lose the prime customer-base," Manian said.
However, a senior official with IDBI Bank, said if banks
are asked to curb their sub-PLR loans, it may hit their asset
book. "Interest rates are determined by the market. If banks
are asked to curb their sub-PLR loans, this will affect the
business of banks, as potential clients may move to other
lenders offering lowest rates," the official said.
Though the exclusion of home loans from the BPLR's fold
was under consideration, the working group is unlikely to
accept this suggestion as it feels that double BPLR system
will alone help to bring transparency in banks' lending,
sources said.
Once RBI puts a ceiling to the sub-PLR advances, banks
cannot lend to potential customers at very lower rates beyond
a percentage of their total incremental advances.
Bureau Report
First Published: Sunday, September 20, 2009, 13:43