 "Banks make base rate scapegoat for not reducing lending rates")
“The search for a scapegoat is the easiest of all hunting expeditions,” former United States President, Dwight David Eisenhower once said. Indian banks seem to be indeed participating in the easiest hunting expeditions, by playing the blame game.
According to a report published in The Economic Times today , banks are blaming base rate for interest rates not falling in line with the Reserve Bank of India’s (RBI) cuts. Base rate was introduced by the RBI in 2010 to replace the murky and non-transparent benchmark prime lending rate (BPLR) regime. Base rate is a rate below which banks are not permitted to lend.
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Before April 2010, banks could lend below benchmark rates to some clients. This not only boosted but also minimised the hit on profitability for banks. Banks are now blaming the base rate for market rates not keeping the pace with the RBI’s interest rate cuts.
“Rigid base rate of banks, when deposit growth rate is near a decade low, is also inducing many Indian corporates to borrow from the overseas markets where funds are available at low rates,” the report said.
Since last year, the RBI has lowered rates by more than 100 basis points, but the market lending rates have fallen just about 40 basis points.
According to the report, a slow fall in lending rate and the RBI’s insistence that unsecured loans should not be given outside of consortium is pushing Indian companies abroad for loans.
Read the whole article in today’s Economic Times.