Bankers say multiple PLRs would enhance transparency

Bankers say multiple PLRs would enhance transparency

Mumbai: With a Reserve Bank panel constituted to rework benchmark prime lending rate (BPLR) widely expected to recommend multiple PLR system, bankers welcomed the development as this would bring more transparency in the lending operations.

The central bank panel, headed by RBI executive director Deepak Mohanty and comprising external experts and IBA, is also expected to put a ceiling on the sub-PLR advances of the banks.

“This is a welcome move. Capping the sub-PLR loans will help to avoid undue competition in the market. There will be more transparency and relevance to BPLR mechanism in the industry," said Union Bank of India, deputy general manager , corporate banking, R.G. Kelkar in Mumbai.

Presently larger banks, with deep pockets, woo prime-customers offering loans at very lower rates, thereby putting pressure on their smaller competitors.

Discriminating pricing of wholesale and retail loans will help to develop more customer-confidence. The double-PLR system will also help banks to price their advances in a better way, Kelkar said.

The RBI panel is understood to have mooted two PLRs -- one for retail and one for wholesale borrowers in its draft report, which is most likely to be inducted in the final report.

The RBI-group is likely to submit its report to apex bank governor D. Subbarao by the end of this month.

“There is a possibility that banks may maintain their retail PLR at around 12%. Ideally, the wholesale benchmarking could be 200-300 basis points below this,“ Kelkar said.

Reserve bank constituted a special working group to revisit the existing BPLR structure in July this year to bring more transparency and uniformity in the manner in which banks arrive the BPLR.

Kotak Mahindra Bank’s head of retail liabilities, K.V.S Manian said that many private sector banks already have the system of double BPLRs and a regulation in this effect is unlikely to result in any major impacts in the industry.

“This is not going to cause any major changes in the market, as banks will adjust their PLRs in such a way not to lose the prime customer-base," Manian said.

However, a senior official with state-owned IDBI Bank, said if banks are asked to curb their sub-PLR loans, this may impact their asset book.

“Interest rates are determined by the market. If banks are asked to curb their sub-PLR loans, this will affect the business of banks, as potential clients may move to other lenders, who offer lowest rates in the market," the official said.

Though the exclusion of home loans from the BPLR’s fold was under consideration, the working group is unlikely to accept this suggestion as it feels that double BPLR system will alone help to bring transparency in banks’ lending, sources said.

Once RBI puts a ceiling to the sub-PLR advances, banks cannot lend to potential customers at very lower (sub-PLR) rates beyond a percentage of their total incremental advances.