Inorder to review the present benchmark prime lending rate (BPLR) system and suggest changes to make credit pricing more transparent, the Reserve Bank of India (RBI) has constituted a working group on the BPLR.
The proposed terms of reference of the working group would be to review the concept of BPLR and the manner of its computation, examine the extent of sub-BPLR lending, examine the wide divergence in BPLRs of major banks, suggest an appropriate loan pricing system based on international best practices, review the administered lending rates for small loans up to Rs 2 lakh and for exporters, suggest suitable benchmark for floating rate loans in the retail segment and consider any other issue relating to lending rates, said the RBI in a release on Thursday.
The working group will be chaired by Deepak Mohanty, executive director, RBI and will have representations from the concerned departments of the central bank, Indian Banks? Association, Banking Codes and Standards Board of India, and public, private and foreign banks. The group would also comprise external experts.
The concept of BPLR was introduced in November 2003 for pricing of loans by commercial banks with the objective of enhancing transparency in the pricing of their loan products.
The annual policy statement 2009-10 released in April 2009 noted that, over time, the system of BPLR has evolved in such a manner that it has lost its relevance as a meaningful reference rate as bulk of loans are advanced below BPLR. Furthermore, this impedes the smooth transmission of monetary signals and makes the loan pricing system non-transparent.
?We are satisfied by the way the RBI has formed the committee. Now, the cost of funds will be calculated. Provisioning funds of NPAS will also be taken in to account as the NPAs have to be borne by our future customers. As of now, the banks provide loans on sub PLR, which is rendered illegal and we as bankers do feel that there should definitely be a clear-cut norm for the fixing of PLR. It is all set to help us in pricing of loans,? noted AC Mahajan, chairman & MD, Canara Bank.
