An Insight into Lending Rate Changes
By Vaibhav Aggarwal
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From macro-economic perspective, it is reasoned that lowering of the lending rates will led to demand induction, encouraging industry growth with the capital infusion. Considering the current WPI inflation rate, which is near zero, it can be argued that the present lending rates are very high. For example, the current gap between the 10-year bond yield and the PLRs of the banks, nearly 550 basis points. This is a reasonably high gap and signifies the scope for reducing the lending rates by the banks.

Some Quick Facts

§         October 1994: RBI deregulated the lending rates for commercial banks subjected to declaration of PLR for credit limit exceeding Rs.2 lakh as approved by the respective boards.

§         April 2001 : The regulator also gave the freedom to commercial banks to lend at ‘sub-BPLR’ (for credit limit above Rs 2 lakhs) to borrowers based on their creditworthiness.

§         Recently, RBI conducted stress tests on the Indian banking system, revealing if banks were to increase NPAs by 100 to 200 per cent, the overall capital adequacy ratio would be justifiable.

§         All loans are linked to benchmark prime lending rates (November 2008 onwards)

§         State Bank of India, has a PLR of 12.25%. Fresh revisions are expected following meeting scheduled with finance minister on June 10, 09.

§         The PLR for the banking majors including Bank of Baroda, Union Bank of India, Bank of India, Canara Bank and Dena Bank is fixed at 12 percent.

§         PNB has the lowest PLR in the industry at 11 percent.


Notes - One basis point is one hundredth of a percentage point.

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