Mumbai: With the April 1 deadline to migrate to the base rate model fast approaching, bank chiefs are likely to raise concerns about the new system and seek an extension of the deadline during their scheduled meeting with top RBI officials tomorrow.
Bankers are worried the new model will affect their business of giving short-term loans to corporate clients at cheaper rates (sub-PLR loans) as lending rates on such loans will go up at least by 2 per cent in the base rate system.
According to them, the base rate, which is a function of cost of deposits, may be in the range of 8.5-9.5 per cent for most banks that used to lend to top-rated corporates at much lower rates, sometimes as low as 6 per cent.
"When the lending rates rise in the new system (on account of base rate model), we may lose corporate customers who may seek other avenues to raise funds," Allen C Pereira, Bank of Maharashtra Chairman and Managing Director, told.
According to him, creating a separate benchmark for short-term loans would help lenders retain their long-time corporate clients whose demand for working capital forms a good part of banks' loan-books.
Bankers are likely to seek time till July to prepare for the migration to the new model as they feel the April deadline gives them very little time to complete the huge task of gathering segment wise data required to arrive at their respective base rates.
Bankers may seek more time for implementing base rate system
Mumbai: Bank CEOs are likely to press for the deferment of the implementation of the base rate model till July for determining interest rates for housing, auto and other loans at a meeting with the RBI tomorrow.
The new regime is slated to come into effect from April 1. RBI has proposed to replace the benchmark Prime Lending Rate (PLR) system with the base rate methodology which would allow the banks to fix lending rates in a transparent manner.
Bankers are likely to seek time till July to prepare for migration to the new model as they feel the April deadline gives them very little time to complete the huge task of gathering segment wise data required to arrive at their respective base rates.
"Each bank has to calculate its own base rate. Banks which don't have their full operations under core banking may find this difficult. They may need some more time," Bank of India Executive Director M Narendra said.
Similar views were expressed by a majority of bankers in a meeting with the Indian Banks Association (IBA) last month. In a letter to the RBI recently, the IBA had sought an extension till July to implement base rate model.
Bankers are also worried that the new model will hit their business of giving short-term loans to corporate clients at cheaper rates (sub-PLR loans) as lending rates on such loans will rise by at least 2 per cent in the base rate system.
"When the lending rates rise in the new system (on account of base rate model), we may lose corporate customers who may seek other avenues to raise funds," Allen C Pereira, Bank of Maharashtra Chairman and Managing Director told.
PTI
