Ushering in a new interest rate regime that could make credit cheaper, several PSU banks on Tuesday announced benchmark base rates of up to 8 per cent, with SBI's being the lowest at 7.5 per cent, for giving loans including housing and commercial at or above it.
Other lenders Punjab National Bank, Union Bank of India and Central Bank of India fixed the benchmark rate (minimum lending rate) at 8 per cent as part of the shift to new regime from July 1, replacing their prime lending rates that ranged between 11 and 14 per cent per cent.
Bank of Rajasthan, a small private bank being acquired by ICICI Bank, also came out with 8 per cent base rate. Other banks, including ICICI Bank and HDFC Bank, are expected to follow suit soon. "...in the consumer loan segment, the impact will be only 25 basis points plus or minus," said State Bank of India (SBI) Chairman O P Bhatt after announcing new rate regime.
Under the present system, the banks would peg a prudent PLR but would lend below it if the credit rating of the borrower is very good. The new system would not allow banks to lend below the base rate.
As per the RBI, the new regime is aimed at improving transparency and prevent creation of non-productive assets. Under the base rate lending mechanism, borrowers will be charged interest rates over the base rate depending on their credit profile.
The system, however, will not apply to concessional loans for agriculture, export and other specified sectors. The base rate system will be applicable for all new loans and also existing loans that come up for renewal.
Existing loans based on the BPLR system may continue till maturity of the existing contract. However, existing borrowers have the option to switch over to the base rate system before the renewal or expiry of the existing contract without any charges, PNB said in a statement.
Central Bank of India Executive Director Ramnath Pradeep said, "We have taken 180-269 days deposit cost for arriving at base rate (8 per cent)." The new system, however, could hurt corporate borrowers, which used to get loans much below the declared BPLR on the basis of their credit profile, said Corporation Bank Executive Director Asit Pal.
"I don't expect any major impact, either on our growth or profitability, because of the base rate coming in," HDFC Bank Executive Director Paresh Sukthankar said, but added that there may be a rise in the rates on short-end corporate loans. As regards the impact of the base rate -- which is 4.25 per cent lower than the existing BPLR of 11.75 per cent -- on the bottomline of SBI, Bhatt said, "It (base rate) will not have any major impact on our Net Interest Margin.
Only 3 per cent of our loans are offered below 7.5 per cent." On the higher side, an SBI official explained, the interest rates will not exceed 7 per cent over and above the base rate. Bhatt said the bank has the flexibility to change the methodology to arrive at the base rate anytime during the next six months, as permitted by the RBI, if it finds the base rate not conducive in the changing market environment.
"If we realise that we are wrong or have doubts, we can do that (change the methodology of computing base rate)... that is quite possible. We do not know how the base rate regime will play out. We do not know what (the rate) other banks are coming out with," Bhatt said.
On continuation of teaser rates, Bhatt said the bank will take a decision on such concessional loans by tomorrow. As per the SBI scheme, for the first year, home loans will carry eight per cent interest rate and for the second and third years, they will attract nine per cent interest.
From the fourth year onwards, home loans up to Rs 50 lakh will be charged 9.25 per cent interest, while higher loans will carry 9.75 per cent interest. Bhatt said the bank's special home loan scheme, even if continued, does not violate the RBI norms on base rates, but the bank is yet to decide whether to extend the scheme.
SBI had extended the special scheme till June 30 owing to huge demand from its customers. The scheme was actually supposed to end by April 30.
