PSU banks take a base rate plunge
Leading public sector banks such as the State Bank of India, Punjab National Bank and Bank of Baroda took the base rate plunge on Tuesday.
The lenders have announced base rates of 7.5-8 per cent per annum. Under the new norms set by the Reserve Bank, this is the lowest rate at which banks will lend.
The new rates will replace the earlier prime lending rate (PLR), which allowed corporates to get loans at extremely low levels. Under the base rate regime, retail and small borrowers will not be subsidizing large borrowers any longer.
H
owever, SBI chief Mr OP Bhatt, doesn’t rule out the possibility that some private banks may announce extremely low base rates to attract large corporates. SBI has set its base rate at 7.5 per cent, the lowest amongst the public sector banks so far. Punjab National Bank, Union Bank of India and Bank of Baroda have set their base rates at 8 per cent.
The other banks will follow suit by Wednesday and are expected to fix their base rate between 7-8.5 per cent. This will raise the cost of short-tem borrowing of the corporates that were used to a lower regime. However one analyst said that there are ways that banks can possibly skirt round the base rate.
One of the ways is for banks to compensate their favoured clients by bunching products. They can offer them several other services like forex dealings etc. The other possibility is for companies to borrow from abroad because of the zero rate regime presently prevalent in several countries. Of course they will have to bear the currency risks, the analyst said.
Addressing a press conference in Mumbai on Tuesday, Mr Bhatt said that the base rate was fixed on the basis of the cost of funds. “Our cost of deposits have been declining and is around 5.5 per cent and this formed the largest component of our Base Rate computation. Currently just 3 per cent of our loans fall below the Base Rate.”
Mr Bhatt said that the current rates will prevail of the old loans and only new loans and those coming up for renewal could see a correction either way.
Mr Bhatt declined to comment on the teaser rates of 8 per cent they had introduced. Analysts point that teaser rates for home loans are above the base rates, and will not be impacted.
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