Base rate: Banks ask for sunset clause

With the banking sector shifting to the base rate system from July 1,bankers have asked the Reserve Bank of India (RBI) to introduce a sunset clause for the old benchmark prime lending rate (BPLR) in order to ensure that only one lending system ,base rate,exists in the system. As the banks cant force their customers to shift to the base rate regime,they are being compelled to announce two lending rates the base rate and the BPLR. In case the RBI brings such a guideline,it will help the banks to announce only the base rate on a quarterly basis. We hope that the RBI will bring into force a sunset clause and ask the borrowers under the retail segment who have opted for the fixed rate of interest to migrate to the base rate regime by June 30 next year, said SBI chairman OP Bhatt.

According to bankers who attended a meeting with senior RBI officials,the sunset clause is likely to have a deadline of June 30,2011. If it is brought into force by the RBI,then all the existing borrowers under the retail loan segment will have to migrate to the base rate regime from the benchmark prime lending rate system. Banks have shifted to the base rate since July 1 at the behest of the RBI. However,they have been demanding for such a clause in order to ensure that only one standard lending system is in place. Otherwise,they would be forced to administer two types of benchmarks for many years in case a borrower refuses to switch over to the new benchmark rate. The RBI is expected to take a view by July 27 when it reviews its annual monetary policy for the first quarter of the current financial year.

Talking about the credit growth,Bhatt said, “With all the available parameters there,it (credit growth) will be definitely better than last year. A 20 per cent growth looks attainable as of now.” The government has set a growth target of 20 per cent for the banks both in credit and deposit segments in the current fiscal. Last fiscal,banks had overshot the 16 per cent target set by RBI and had ended the year with 16.5 per cent growth.

Bhatt said credit growth has already started picking up and once the demand escalates further,there would be pressure on banks to garner more deposits by hiking deposit rates. “Once credit demand escalates,there will be a pressure on deposit rates to go up,” Bhatt said,adding SBI,however,would wait for policy cues from RBI on July 27 before making any changes on its interest rates.