Until the Reserve Bank of India change the signals in its policy stance and liquidity conditions show a progress, state-run Corporation Bank will hold its sub-PLR lending to corporates.
Sub-PLR loans are the loans extended to some of the top corporates below the prime lending rate (PLR) with a view to encourage more low-risk borrowings.
The tight liquidity conditions have prompted the bank to take such a move along with protecting the margins in a high interest rate regime and rising cost of funds. Provisioning made on account of the depreciation of its bond-porfolio has slowed down the bank's growth in the first quarter of the current fiscal.
Coporation Bank's Chairman and Managing Director, B Sambamurthy said, "Sub-PLR lending is becoming irrelevant in the present context given the tight liquidity and high cost of funds. We have significantly reduced our sub-PLR loans. This would continue till the prevailing liquidity conditions change."
Corporation Bank used to lend to the top-rated corporates at a negotiated rate which is well below the prime lending rate (PLR). Its corporate lending comprises of around 20% of its lending portfolio. The retail loans amount to 25% of the total lending.
There have been other banks which have taken a similar move regarding their sub-PLR loans. India's largest lender, State Bank of India (SBI) has also reduced their exposure to sub-PLR loans after the RBI tightened the liquidity from the economy to curtail inflation.
Now the banks have decided against issuing sub-PLR loans even to their most credit worthy borrowers. Even the banks that are extending loans to such corporates, are charging interest rate that is equal to the prime lending rate. It's almost after a gap of five years that banks have started charging benchmark prime lending rate (PLR) for loans extended to big corporates.