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Sunday, Mar 10, 2002

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Bankers awaiting Credit Policy to cut PLRs

Rukmani Vishwanath

MUMBAI, March 9

BANKS were waiting for the Budget proposals to take a view on interest rates. Now, it appears, they may wait until the Monetary and Credit Policy in April to decide whether to reduce prime lending rates (PLR).

Banks do not seem to be in any hurry to lower lending rates in spite of being nudged in this direction first by the Finance Minister who announced a 50-bps cut in the small savings rate and then by the Reserve Bank of India which cut the fixed rate repo by a similar margin.

"Since the yearly accounts closing is near, no bank would be keen on upsetting the equilibrium as it may affect their bottomlines.

In this scenario, it is unlikely that anyone will cut PLR. One will wait for the credit policy and then take a view,'' said a senior banker.

It has become a common practice among bankers to "wait-and-watch'' for policy direction from regulators to take a view on lending rates.

However, the days when a reduction in administered rates or central bank refinance rates immediately triggered rate cuts by banks appear to be over.

Now-a-days it is increasingly being seen that banks take advantage of policy to tighten the screws on depositors but do not pass on the benefit to borrowers.

Bankers have always been touchy when it comes to the subject of lowering lending rates. Many bankers argue that their PLRs are already low and that they have `sub-PLR' lending due to which the need for a reduction in PLR is not seen as essential.

The fact, senior bankers admit in private, is that if they lower PLRs, lending rates across the board will come down as the maximum rate is capped at 400 basis points above the PLR.

An across-the-board drop in lending rates would mean the spreads would narrow, which, in turn, implies being on the toes all the time in terms of maximising returns from all possible avenues.

It also entails astute risk management — risk assessment, pricing and mitigation — an area where banks do not have much to brag about.

The "sub-PLR-loan-available'' argument does not hold good most of the time as it is usually only the top corporate with high credit ratings which get money at fine rates. Even though bankers say that genuine borrowers get good rates, industry experience is otherwise.

"It depends on the rating one has. Banks feel that if you are triple A then you are a good customer. But if your rating is slightly lower then you have to pay a much higher cost,'' said an industrial borrower.

"Banks have been reducing lending rates on a sectoral basis, like in housing and personal loans segments. But a cut in PLR will have deeper repercussions.

The ALM committee of banks meets on a weekly basis and it seems that most banks will wait for the credit policy before taking a decision,'' said a banker.

However, even in personal and consumer loan segments, the rates for individual borrowers are as high as 14-16 per cent which is almost double that offered on term deposits.

Although top bankers unanimously agree that the interest rates are under pressure to move southwards, it may be a while before borrowers get money at lower rates. Meanwhile, the wait continues.

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