Business Daily from THE HINDU group of publications
Friday, Jun 01, 2007
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Business Daily from THE HINDU group of publications Friday, Jun 01, 2007 ePaper |
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Banking Money & Banking - Interest Rates Adopt transparent method for lending rates, banks told Our Bureau
"A predominant and growing proportion of - over 80% - of the commercial banks loan portfolio is at sub-PLR rates."
Mumbai May 31 The Reserve Bank of India wants banks to follow a more transparent method in determining their benchmark prime lending rates (BPLR). According to the banking regulator, though banks have been given freedom to determine their lending rates, the principles followed by them are viewed as "opaque." In its report on "Currency and Finance" for 2005-06, released today, the RBI has said that a predominant and growing proportion of - over 80 per cent - of the commercial banks loan portfolio is at sub-PLR rates. The BPLR has ceased to be a reference rate, thereby hindering an assessment of the efficiency of the monetary transmission, the report said. "There is a public perception that banks' risk assessment process are less than appropriate and that there is under-pricing of credit for corporate, while there could be overpricing of lending to agriculture and SSIs." The report said lending below PLR has several implications, particularly when the rates are fixed arbitrary and not based on rules. "Therefore, the concept of arriving at the BPLR needs to be looked into with a view to making it more transparent."
Equity market
Referring to the development in the equity market, the report said the size of the public issue segment has remained small, as corportes prefer the international capital market and private placement route for fund mobilisation. Promoters continue to hold a large portion of equity in Indian companies and this concentrated ownership prevents the broad distribution of gains from the market. This also has corporate governance implications and protection of the rights of minority shareholders.
Forex market
On the foreign exchange market, the report said the market would have to prepare itself to deal with large capital inflows as inflows would continue in view of the stable economic conditions in India. On fuller capital account convertibility, the report said the agenda for the future should include introduction of more instruments particularly of more derivative products. As the country progress towards CAC, it would have to contend with the "impossible trinity of independent monetary policy, open capital account and exchange rate regime. At best only two out of three would be feasible." The policy makers as well as the market participants would have to face grater swings in the financial markets in the future than hitherto, the report said.
More Stories on : Banking | Interest Rates | RBI & Other Central Banks | Credit Market
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