Higher base rate proves costly for banks
By Joseph Samson
Sep 10, 2010
Print    Email    RSS   

Base rate has been adding to the woes of banks. Earlier, banks were concerned of losing short term borrowers to commercial papers (CP) while now they are losing customers to their peers also.

Banks which have comparatively higher base rate than their peers have started losing customers in the market. eg- Vijaya Bank having base rate at 8.25% may lose out to State Bank of India which has base rate of 7.5%.

If this situation persists, then top losers would be Karur Vysya Bank and Karnataka Bank which have highest base rates at 8.5% and 8.75% respectively.

"Those who have set their base rates higher are losing customers to banks that have a lower base rate," said Suresh Ganapathy, head of financial research team, Macquarie Securities.

"Lending is not happening significantly because of the higher base rate. Corporates are going to banks with lower base rate," says Albert Tauro, chairman and managing director, Vijaya Bank.

"To set a higher base rate was a conscious decision on their part. At the end of the day, if the smaller banks were serving the larger corporates, they were doing it at a loss," says Abizer Diwanji, executive director and head of financial services, KPMG.

"We have gained customers from banks which had set a higher base rate than ours. But at the same time we have even lost customers to those banks which had set a base rate below ours," said a senior official of Corporation Bank.

"Smaller banks will be losing market share going forward. As interest rates rise, they will become more uncompetitive vis-a-vis the larger peers. If they charge the same rates as larger banks, they will lose out on margins. Similarly, if they charge a higher rate, they will lose out on customers," says Vaibhav Agrawal, vice-president (research), Angel Broking.

"When our loans will come for renewal, we will take a call on whether the rates are acceptable," says RR Nair, director and chief executive, LIC Housing Finance.


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

 Select a product:

Credit score from CIBIL: will it really...
IBA to push for MIBOR as the benchmark rate
Fixed or floating interest rate home loan:...
Mortgage insurance’s relevance in India
How to go about ‘Leveraged Investing’

PINJORE: CaℒL Giℛℒs In PiNjOrE 09915787550...
PINJORE: CaℒL Giℛℒ In PiNjOrE 09915787550...
how to gate my home loan certificate

Canara Bank earned a profit of 60%. Feb 6, 2015
New Branch of Laxmi Vilas bank at Vijayawada Jan 30, 2015
Home loan EMIs expected to drop down Jan 21, 2015
Corporation Bank received MSME banking excellence award 2014 Jan 19, 2015
Home loan rates set to fall, after reduction in repo rate Jan 16, 2015
News Archive