Subsidised loans can be below base rate

Written by Saikat Das | Saikat Das | Kumud Das | Mumbai | Updated: Jun 30 2010, 03:35am hrs
Clearing the last hurdle to kickstart the base rate system, the Reserve Bank of India (RBI) has finally clarified that banks can lend below base rates for the subsidised loans, including agricultural, export credit and restructured loans.

We clarify that in those cases where subvention is available to borrowers, the critical issue is the yield available to banks after taking into account the subvention for purpose of complying with base rate guidelines(and not the interest rate charged to the borrowers), RBI said in a statement.

Banks have been asked to charge interest rates as stipulated by the government for crop loans up to Rs 3 lakh, for which subvention is available.

If the yield to the bank (after including subvention) is lower than the base rate, such lending will not be construed to be violative of the base rate guidelines, the central bank said.

Referring to interest rate on export credit, which assumes more significance in the wake of ongoing global financial turmoil like euro zone crisis or Chinese yuan revaluation, the RBI said that interest rates applicable for all tenures of rupee export credit advances will be at or above the base rate.

Any interest subvention, wherever it is available in this category of lending, can enable banks to reduce the interest rate chargeable to exporters. In that case, if such rate of interest falls below base rate, it will not be considered as violation of base rate guidelines, said RBI.

Moreover, any restructured loans like working capital term loan (WCTL) and funded interest term loan (FITL) can also be granted below the base rate. In case of restructured loans, if some of the WCTL, FITL etc. need to be granted below the base rate for the purposes of viability and there are recompense clauses, such lending will not be construed to be violative of the base rate guidelines.

Even loans on which rebates are provided for prompt repayment are left out of the ambit of base rate and it will not beget any infraction of base rate guidelines.