The Reserve Bank of India (RBI) has assured the bankers that it would announce the application of sunset clause to bring all long-term fixed loans under the purview of the base rate. The clause is likely to have a deadline of June 30, 2011.
Once the sunset clause is brought into force, all existing borrowers in the fixed rate retail loan segment will have to migrate to the base rate regime.
Though the banks have shifted to the base rate from July 1 at the behest of the RBI, they have to maintain two systems?one for the new borrowers following the base rates and another for those who had borrowed loans in bench mark prime lending rate (BPLR) regime?which is a cumbersome exercise.
State Bank of India OP Bhatt said, ?We hope that the RBI will bring into force a sunset clause and ask those borrowers under the retail segments, who had opted for the fixed rate of interest, to migrate to the base rate regime by June 30 next year.?
In case the RBI brings such a guideline, it will help the banks since they will then have to announce only base rate on quarterly basis.
?What is happening now is the banks can’t force the existing customers to shift to base rate. Hence they are compelled to announce two kinds of standard lending rate, the base rate and the benchmark prime lending rate (BPLR),” he explained.
Bhatt was talking to reporters after the bankers’ customary meeting with the RBI top brass?deputy governors Subir Gokarn, Shymala Gopinath and KC Chakrabarty?prior to the monetary policy review scheduled on July 27 . The apex bank is widely expected to hike its overnight lending and borrowing rates?repo and reverse repo?by 0.25 % to check double-digit inflation.
Bhatt said the credit growth has already started picking up in the system and once the demand escalates further, there would be pressure on banks to garner more deposits by hiking their deposit rates.
?Once the credit demand escalates, there will be a pressure on deposit rates to go up,? Bhatt said, adding that State Bank, however, would wait for policy cues from the RBI prior to effecting any changes on its interest rates.
Bhatt hoped that the credit growth will be more than what it was last year . On liquidity, he said it would start improving by the month end to become finally comfortable by August-September.
Commenting on the low IIP numbers, Bhatt said that it was dependent on liquidity and credit offtake. ?But, it was not dependent on the interest rates. Still, I do believe that it was a temporary phenomenon,? added Bhatt.
Canara Bank chief AC Mahajan, Axis Bank managing director & chief executive officer Shikha Sharma, Bank of Baroda CMD MD Mallya and Bank of India CMD Alok Misra were part of the bankers delegates that met RBI officials.