Sub-PLR loans back in vogue

Banks may not be reducing their prime lending rates (PLR), but they are selectively lowering interest rates for specific segments and certain clients.

So, sub-PLR loans, which had vanished from the market after the global credit crisis intensified in September, are back in vogue. For instance, an oil marketing company availed of a short-term credit facility of Rs 500 crore from a public sector bank at less than 7 per cent.

Even oil companies, which are seen to be among the best borrowers, had to borrow at close to 13 per cent, which was close to the prevailing PLR in October-November. Non-banking finance companies, which were finding it difficult to raise resources from banks, can now avail of loans at 10.5-11 per cent as against 14-15 per cent in November.

Similarly, interest rates on letter of credit bills, which are seen as a low risk instrument, have dropped from 14-15 per cent in October-November to 10.5-11 per cent now.

Banks had stopped issuing sub-PLR loans after the credit crisis intensified in the US and had opted to be selective in lending partly due to the liquidity crunch as also out of fear of defaults, especially in certain sectors.

Companies in the oil sector were facing a liquidity crunch, while small and medium enterprises, real estate players and NBFCs were seen as risky bets.

But after the government announced the measures, these fears have subsided. So banks such as Standard Chartered, which are yet to lower their PLR, are offering home loans and other loans to select corporates at a discount to the benchmark rate. Similarly, HDFC Bank, the second largest private sector lender, has lowered its BPLR by only 50 basis points, but it has cut the lending rates for corporate and retail loans by up to 200 basis points.

After RBI’s suggestion last week that banks had scope to cut interest rates further, Punjab National Bank and IndusInd Bank have announced a reduction their BPLRs.

In contrast, State Bank of India and HDFC, the country’s largest mortgage player is offering home loans at a discount for a limited period. Like home loans, SBI is also offering loans to SMEs through the special offer at 8 per cent for a year.

“Prime lending rate is the most misleading indicator of interest rates. Without changing PLR, interest rates are dropping as you can see from the decline in negotiated rates. The risk-reward relationship is coming back into play,” said IndusInd Bank MD and CEO Romesh Sobti.