Benchmark PLR And Rate War
Updated: Sep 20 2003, 05:30am hrs
This has reference to the news item RBI asks IBA to work on benchmark PLR (Sept 17). RBI has to take the blame for todays situation. The Prime Lending Rate concept was introduced in the banking industry as a benchmark rate for lending to be decided by banks based on cost of funds, cost of operations and risk perception. When it was introduced, banks were advised to fix their lending rates for various segments based on the PLR and they were not allowed to lend below the PLR.
Later, RBI permitted banks to lend below PLR which has resulted in banks undercutting each other, forgetting the long-term impact of such actions. The beneficiaries are not the common man but the corporate world who started auctioning their loan requirements and banks started to give their quotes. Loans are given at 5.6 per cent when the cost of funds is more than 6 per cent for the banks. In the bargain, banks are risking their long-term interest.
The irony is that loans to the priority sector such as agriculture and small-scale industries are still being charged interest ranging from 11 per cent to 13 per cent. A decade ago, priority sector loans used to be cross-subsidised by the corporate sector. But today, it is other way round. If the present rate war goes on, the day is not too far when the banking industry will start bleeding. It is high time RBI asks banks to fix a benchmark PLR below which no bank should lend, so that customers get better rates and industry also will prosper.
D N Prakash, Mangalore
Trais Right Move
This refers to the news item about Trai taking steps to check automatic charging of roaming (Sept 17). Besides being a telephone, my GSM handset is a watch, an alarm clock, a timer and many things to me, being a part
of my ensemble. I must be able to keep my cellphone on even if I dont want to be in the network, while roaming in another state.
I feel it is exploitation on the part of service operators when they charge me automatically, even when I have just switched on my cellphone in other state. The charges, including IUC charges, make the situation atrocious for a pre-paid customer. Trais vigilance and agile action firmly taken is very appreciable.
Lifebuoy From HLL
Apropos the launch of HLLs Rs 2 Lifebuoy soap (Sept 19), it is good news that a cheaper brand of soap is coming in the market and that the thrust area for launch is the Indian rural sector. In my opinion this brand, before being launched, should be tested by an independent scientific body to ensure that contents are safe for common use since rural folks are targeted.