New base rate lending rule will help SBI: Bhatt

The country’s largest lender, State Bank of India (SBI), today said the proposed base rate mechanism to replace benchmark prime lending rate (BPLR) will be beneficial for it.

“It is good for us,” SBI Chairman OP Bhatt told Business Standard.

According to the draft norms issued by the Reserve Bank of India (RBI) last week, the new benchmark will be based on the cost of deposits, overhead costs, adjustment for negative carrying cost on funds pre-empted by cash reserve ratio and statutory liquidity ratio and a profit margin.

At the same time, RBI has proposed a ban on lending below BPLR from April 1.

While banks will benefit by around one percentage from the adjustment for negative carrying cost on cash reserve ratio and statutory liquidity ratio, the ban on sub-BPLR loans is also expected to increase yield on advances.

For banks such as SBI, sub-BPLR loans accounted for nearly three-fourths of all lending. With low credit demand, banks were offering short-term corporate loans at 6-7 per cent per annum. SBI’s base rate was estimated at around 9 per cent. With the implementation new norms, no loans can be extended below the base rate. Export finance and loans to weaker sections will be the only exceptions, for which RBI will issue guidelines soon. Bhatt said SBI was comfortable with the proposed April 1 deadline.

Asked about his assessment on bond yields, the SBI chairman said he expected the yield on 10-year government bonds to cross the 8-per cent mark in the near future. He said it would settle around 7.5-7.6 per cent by the end of March.