The Hindu Business Line : KCCI plea to banks on prime lending rate

THE Kanara Chamber of Commerce and Industry (KCCI) has urged the Chairman of the Indian Banks Association (IBA), Mr V. Leeladhar, to have a prime rate which reflects the borrowing capacity, credibility, creditworthiness, repayment capacity and character of the borrower who will be eligible to borrow at prime lending rate (PLR).

In a press release here on Friday, the KCCI President, Mr R.D. Kini, said the prime rate should respond to the signals from Reserve Bank of India (RBI) when it sets the bank rate.

Stating that prime rate should be an indicator for the right pricing of the interest rates on deposits that affects the costs of the banks, the release said that the prime rate should be helpful to the bank and the industry to gauge the right pricing of interest for borrowers from the banking system.

Small-scale industries (SSIs) and commercial sector should be eligible for loans between 8.5 per cent and 9.5 per cent interest. Meanwhile, in a note submitted to the RBI, the Chairman of Banking and Finance Sub-Committee of KCCI, Mr G. Giridhar Prabhu, has suggested that RBI define a PLR sensible by a process of arithmetic and econometric calculation and arrive at a conclusion on how banks should price the interest rate on deposits. The rate of inflation, conditions in the international money markets, and the demand for investments in India or lack of it should be taken into consideration in pricing interest rate.

He said that the banks might be advised to benchmark a scientific prime rate to the categories of existing loans over a period of time.

He suggested that the bank be given two years for settling the current outstanding loans to be benchmarked to PLR on a graduated basis.

Mr Prabhu requested the RBI to issue guidelines to banks that the prime rate of any commercial bank need not exceed 200 basis points above the bank rate.The lending rate on loans by any bank to various constituents need not exceed 600 basis points over the bank rate till March 31, 2004.

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