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Kolkata , Sept. 5

THE benchmarking of PLR (prime lending rate), as suggested by Reserve Bank of India to various banks to ensure greater transparency in the determination of interest rates, will be in place during current month itself, according to Mr K.K. Rai, Executive Director of Allahabad Bank. This was decided at a meeting RBI recently had with several banks, he said.

The benchmarking, to be done by each bank by taking into account various costs such as the cost of deposits, operating expenditure, cost of capital and the cost of NPAs, should at least stop competition among banks in regard to fixing of PLRs, Mr Rai said while addressing members of the Merchants Chamber of Commerce here on Friday. RBI wanted each bank to fix PLR according to its own cost structure instead of following what other banks were doing, he said.

RBI, he pointed out, had also asked banks to disclose the amount of premium each bank was holding on their investments again to introduce transparency, he said.

There was nothing sacrosanct about PLR, Mr Rai observed indicating that a triple A-rated company could get loans even at sub-PLRs. But the problem was that there were not many such companies around. "Mobilising funds is no longer a problem but locating a good borrower, particularly in the mid-segment, can be a real challenge,", he said. Since the rate of interest would depend on the risk perception a bank would have about a borrower, the cost of funds for a company with not-so-satisfactory track record would not be as low as it was made out to be.

With the demand for non-food credit not showing any sign of rising, the banks were now plush with funds and any cut in CRR or bank rate would only add to their woes.

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