NEWS & ADVICE : FIXED DEPOSITS
Banks disburse loans at Sub-PLR rates
By Neelima Shankar
Apr 7, 2009
Print    Email    RSS   

With improved liquidity conditions, banks have come back on the trend of disbursing loans at discounted rate that is below benchmark prime lending rates (BPLR).

Majority of the fresh loans of the banks are being disbursed at sub-PLR rates that were been avoided by the banks due to the risk of high default during the slowdown. But now banks are extending 65-70% of the fresh loans at sub-PLR rates.

In a meeting with the Cabinet Secretary K M Chandrasekhar, bankers said that majority of them had their BPLR in the range of 12% to 12.25% and they were extending most of their loans at rates lower than the BPLR.

Loans to large manufacturing firms and short-term farm loans are available at single digit rates but rates for commercial real estate are yet to reach this level.

However a banker said, "BPLR has little relevance since we are offering short-term credit, which is backed by adequate securities, at 7.5 to 8 percent."

On the other hand, another chief from a bank said there is not other option but to lend at a discounted rates to ensure adequate credit growth since the demand for funds is low and liquidity is sufficient.

Chairman of a PSU bank said, "The pricing has to be right. If you give loans at cheap rates, you face the prospects of default. At the same time, if interest rates are high, borrowers will get a loan from a different bank and we will lose business. We have no option but to offer sub-PLR loans."

These PSU banks have recorded a yield of around 10-10.5% in their loan book where as the average cost of funds are nearly 7%. If the cost of funds for banks range around 7% then the minimum rate at which banks can lend after considering the operating costs into account is around 9%. "We need to build in the default risk and other social obligations that are thrust upon us so the average yield would be higher," said a banker.

A source present at the meeting said, "Public sector banks can lower BPLRs further but the discount will also come down by the same magnitude."

The recent cut in policy rates by RBI also prompted many banks to cut their PLRs. Most of the banks including some of the private and foreign lenders have also responded to the RBI's move and cut their interest rates.

 


(Comments Posted : 0) Post Your Comments
Show All Comments
COMPARE QUICKLY
 Select a product:
 

CALCULATE QUICKLY
 Select a product:
 

EDITORS' PICKS
Fixed Deposits: Safest instrument to invest
FMPs or FDs: Make an informed choice
A checklist of investment options for...
Carnival of Indian Personal Finance Blogs #4
Haven’t filed a return of your income?...


MEXING: CaℒL Giℛℒ In Hoshiarpur 09855660911...
Sakeela.CaℒL Giℛℒs In Kharar 0985566O911...
NANGAL: CaℒL Giℛℒ In Una 09855660911 Escoℛt...

NEWS THIS WEEK
Federal Bank launched V connect for its customers Feb 12, 2015
Andhra Bank on expansion mode Feb 11, 2015
Dena Bank earned a profit of 13%. Feb 9, 2015
Banks expected to cut down the rates Feb 5, 2015
RBI kept the rates unchanged Feb 4, 2015
News Archive