Base rate likely to be between 8-8.5%: Bankers

Most bankers have indicated that they will keep their base rate between 8 per cent and 8.5 per cent, up to 5 percentage points lower than the existing Prime Lending Rate (PLR).

The bankers said this even as they awaited a clarification from the Reserve Bank of India (RBI) on concessional loans, such as farm credit.

The base rate, to come into effect from July 1, will replace the existing PLR -- which varies between 11 per cent and 13.5 per cent for public sector banks.

"It (base rate) could be in between 8-8.5 per cent," Canara Bank Chairman and Managing Director A C Mahajan told PTI. The bank will announce the rate by the last week of June, he added.

 

Base rate, the lowest rate that the bank can charge from a customer, is intended to bring about more transparency in lending operations of banks.

SBI, the country's largest lender, said the bank is fully prepared for the new interest rate regime.

"We have already indicated that the base rate would be between 7.5 per cent and 8.5 per cent," SBI Chairman O P Bhatt said.

SBI had said that it would announce the base rate by June 15.

Last week, banks had made a representation before the RBI to seek clarifications on the concessional rate. "We have raised a host of issues relating to agriculture and export loans before the RBI," said an official, who attended the meeting.

The RBI is understood to have agreed to issue circulars giving more clarity on concessional loans, the official said.

The government offers 2 per cent loan subsidy on farm loans, something that lenders fear may come to an end after the base rate is implemented. Banks cannot charge more than 7 per cent on agriculture loans.

Similarly, in case of rupee loans to exporters, the government does not allow PSU banks from charging more than 2 percentage points below its the PLR.

Giving indication on the range, the Punjab National Bank said that the base rate would be between 8 per cent and 8.5 per cent. However, most banks would make their base rate clear only by the end of June.

Banks that have a high Casa (Current Accounts and Savings Account) ratio would be at an advantage because the cost of funds for those banks would be lower.

The Oriental Bank of Commerce said that the base rate was likely to be between 8 per cent and 9 per cent.