The Indian Banks' Association (IBA) will this month recommend to the Reserve Bank of India (RBI) to re-introduce the system of multiple prime lending rates (PLRs). | |
| The report would also suggest that segment-wise PLRs that will be set by banks themselves be treated as floor rates. Treating PLRs as floor rates will mean an end to the current practice among banks to lend below their benchmark rates. |
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| "Each business segment has specific risk profile and cost structure. Hence, there is a need to have separate PLRs for sectors such as retail, agriculture, infrastructure and small and medium enterprises. Multiple PLR would help banks to price credit based on risks perceived," IBA chief executive, H N Sinor, told reporters on the sidelines of a seminar it organised on retail banking. |
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| IBA expects to submit its report on a new benchmark PLR system by the end of this month. |
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| In its mid-term review of the annual policy on October 25, 2005, RBI had asked IBA to review the benchmark PLR system afresh and issue transparent guidelines for appropriate pricing of credit, in consultation with its member banks. |
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| The system of single benchmark PLR for every bank was introduced in 2003 and banks were allowed to freely price their loan products below or above their BPLR and offer floating rate products by using market benchmarks in a transparent manner. |
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| RBI had, however, noted that the evolution of the system of BPLR over the period has not fully met the expectations. |
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| Competition has forced the pricing of a significant proportion of loans far out of alignment with BPLRs and in a non-transparent manner. As a consequence, this has undermined the role of the BPLR as a reference rate. |
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