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Bankers seek segmented PLRs for various sectors

BS Banking Bureau in Mumbai

From urging to soft persuasion, Reserve Bank of India governor Bimal Jalan tried all means in his customary credit policy meeting with bank CEOs to bring down the rates.

The banks, in turn, asked RBI to look into segmental PLR (prime lending rate) as against maturity-based PLR. In the segmental PLR every segment - corporate, agriculture, retail will have its own PLR. Each segment has different capital and resource allocation as also the risk perception is different for each segment.

Bankers also pointed out that some large corporates used to enjoy large limits from many banks, which were never utilised and they also shopped around for better interest rates.

Some banks suggested to the Governor that these corporates must pay commitment charges.

However, Jalan rejected the idea saying that it is not possible when the RBI is moving towards a free market policy.

Jalan made no bones about the fact that only the top borrowers should not get the benefit of low interest rates. He indicated to the bankers that softer rates should be available for all segments including small and medium scale borrowers.

The bankers present at the meeting said that non-performing assets in this sector of the economy was also comparatively higher.

In its April 2002 credit policy RBI had indicated that spreads over PLR of some banks were substantial and had urged banks to review the maximum spreads over PLR and reduce them wherever they were unreasonably high. A few banks have reduced marginally their maximum spreads.

The RBI in its mid-term credit policy has said that in a competitive market, PLRs among various banks should converge to reflect credit market conditions and these spreads around the PLR should be reasonable. The central bank said that unreasonably wide spreads could adversely affect the overall credit portfolio of banks.

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