A new interest rate regime will begin on Thursday when the country moves to the RBI-mandated system of following Base Rate,believed to be a more objective interest rate benchmark than the currently followed bank prime lending rate (BPLR) system.It is also believed that compared to the BPLR system,the base rate regime will bring in more transparency in fixing the lending rate in the banking system.
In addition,unlike in the BPLR system,under the base rate regime,no bank can lend below the base rate.This new rate is arrived at by taking into consideration a banks cost of deposits,its profitability of the previous fiscal year,its administrative costs etc,with the cost of deposits having the most weight,top banking officials said.
On Tuesday,banking major SBI led the sector by fixing its base rate at 7.5% per annum.During the day,it was followed by a host of PSU and private sector banks,each settling at 8%.Central Bank of India,Punjab National Bank,Union Bank of India and Bank of Rajasthan also announced their base rates on Tuesday,while HDFC Bank,ICICI Bank,Axis Bank and others will announce their rates on Wednesday.
After announcing the base rate,O P Bhatt,chairman,SBI,said that the bank will announce its housing loan and other consumer loan rates,which will be linked to the base rate,on Wednesday.With the banking leader setting the tone,other banks are also expected to follow SBI in fixing their home loan and other rates,industry observers said. However,the banking sector could also witness some intense competition as a section in the market expects that HDFC Bank,the private sector banking major,could fix its base rate lower than SBIs.
Speaking to reporters,Bhatt said by moving to a base rate regime,the impact in the consumer loan segment could only be 25 basis points plus or minus. He also said that existing home loan,auto loan and other customers will not be impacted by the change in the benchmark rate.Only the new customers taking loans from banks will have to pay at rates linked to the base rate
The new system allows banks to charge interest rates over the base rate depending on the borrowers credit profile. However,rate of interest on loans mandated by the government,like concessional loans for agriculture,exports,rates fixed under corporate debt restructuring mandate,will remain outside the base rate mechanism.In a release Central Bank of India said that in case its existing borrowers wanted to switch to base rate system before expiry of the existing loan contracts,they may approach the bank for switch over to new base rate system. The bank will not charge any fees for such a switch over, the release added. The full impact of the change over to the base rate on corporates and consumers is yet to be understood fully,top bankers said.They,however,believe the change to base rate is unlikely to impact banks profitability in any major way.Paresh Sukthankar,executive director,HDFC Bank,told TOI that the bank did not see any major impact of the new base rate on its profitability.He also said that he expected most banks to keep the base rate between 6.75% and 8%.
Teaser rate: SBI to take decision today
Mumbai: After fixing the minimum lending rate at 7.5%,the State Bank of India has said that it will take a call on whether to extend its special home-loan scheme or teaser loan rates on Wednesday.The scheme offers 8% interest rate in the first year of the mortgage,and at 9% in the second and third years.The department is working on that,and we will take a decision by tomorrow (Wednesday), SBI chairman O P Bhatt said.AGENCIES
Comment : In Simple terms: Earlier Home loan rate was at a Discount to PLR. Now Home Loan rate will be at a premium to BR. So if Home loan rate was earlier 9% with 2.5% dicounted over PLR of 11.5%, now it will be 9% with 1.5% premium on BR of 7.5%. Keyword Tags Hyderabad News,Base Rate, BR, SBI BR, Housing Loan
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