New Delhi: Bankers want the Reserve Bank of India (RBI) to relax some of the guidelines that it issued as part of a shift towards the freeing of loan rates starting 1 April.
The concessions were sought with regard to the central bank’s bar on lending below a “base rate” at a meeting organized by the Indian Banks’ Association, or IBA, the apex lobby group.
Bankers asked that the rules be eased in the case of loans against deposits, loans to employees and priority sector obligations of foreign banks, according to an IBA official, who did not want to be named.
Dealing with change: Bankers urged RBI to ease norms regarding loans against deposits and priority sector obligations of foreign banks. Harikrishna Katragadda/Mint
When banks give loans against deposits, the rate of interest is about 1 percentage point more than the deposit rate. With three-year fixed deposit rates hovering around 7%, the borrowing rate translates to 8% in the case of such loans. That would be lower than the present hypothetical base rate of 9-9.5% for most the banks, which are seeking the concession fearing a backlash from depositors.
They also sought a relaxation in the case of loans to their own employees, which are made at a concessional rate and will be lower than the base rate.
Foreign banks are worried about meeting their priority sector obligations, which is presently at 32% of their total advances. To meet their quarterly and yearly targets, foreign banks adjust the rates drastically and lend at a much cheaper rate to the medium and small enterprises and exporters. This, they are concerned, will not be possible when the base rate comes into effect and they have asked for special concessions on this issue, lest they be penalized for not meeting their targets.