Banks Ease Sub-PLR Norms To Boost Offtake

Mumbai, July 24: | Updated: Jul 25 2002, 05:30am hrs
A liquidity overhang, a steep fall in commercial paper (CP) rates and a lack of credit offtake are changing some basic perceptions about borrowers who were privileged to have the best rates from banks. Lack of demand from regular corporate clients who were earlier borrowing at above prime lending rate (PLR) is forcing state-run banks to aggressively expand their sub-PLR segment with a bit of relaxation in ratings.

Earlier, the sub-PLR segment was invariably reserved for top clients with high quality ratings. But now, funds are being easily accessed by clients with lesser ratings, and with relatively less appetite for funds.

The country’s largest commercial bank, State Bank of India (SBI), which controls almost 40 per cent of the economy, has scaled down the manner in which it evaluates the eligibility of a customer for the sub-PLR segment.

In effect, there is a realignment in the profile of borrowers across banks. “Now, what is good for a Bank of India (BoI) is good for us as well for defining a sub-PLR client. Even if a corporate does not have a triple-A rating, we are going for the strategic pricing method to allow the company in the sub-PLR segment,” said an official of SBI, adding, “There is all round competition for deploying funds at competitive rates and we would not leave a client just like that. We would like to match the rate”.

“Earlier, if 25 per cent of the loanable funds was given to the sub-PLR segment, now it has gone up to 60 per cent by enlarging the definition of a sub-PLR customer”, said a top official of BoI, adding that the bank is prepared to accept corporates with an A-rating in its sub-PLR segment.

“Everybody is asking for a sub-PLR rate”, said a senior official at the state-owned Union Bank of India (Union Bank). Those who cannot be accommodated in the sub-PLR segment are today being accommodated at PLR or marginally over PLR, said the Union Bank official.

Banks are keeping so many windows open under the sub-PLR segment. Apart from CPs and lending below PLR — the lowest in the history of the nationalised banking industry — SBI is aggressively marketing a CP-like loan product, which is priced higher than a CP, but lower than the sub-PLR rate. The sub-PLR is pegged at 3-3.5 per cent below the PLR.

Bankers also pointed out to the daily outflows of over Rs 25,000 crore at the Reserve Bank of India repos-auctions to buttress the point on liquidity. Corporates never had such a time when they can literally dictate terms, including the rate at which they want to borrow from state-run banks, said bankers.