Banks welcome base rate; say no major impact on margins

MUMBAI: Bankers on Thursday ruled out any impact on their earnings margins on account of the base-rate system proposed by the RBI and said the new transparent model would enable the borrower to bargain effectively to avail better pricing.

"This would help for more scientific bargaining rather than bargaining without any base. This will also ensure that banks can charge their customers according to their risk appetite," Punjab National Bank chairman and managing director, KR Kamath, told reporscot freeters in Mumbai.

To make bank lending more transparent, the Reserve Bank yesterday proposed the new base rate model instead of the present BPLR system, from next fiscal. The new system prevents banks to lend below their base rate even for top-rated clients.

Presently, banks offer loans to corporate clients much below their Benchmark Prime Lending Rate (BPLR), inviting the apex bank's attention to the matter.

Kamath ruled out any impact on banks' credit growth or net interest margins because of the proposed model, saying that the new system would offer a level-playing field to everyone and corporates can still bargain for better pricing from banks.

"Even now (in the BPLR system), all top rated corporates look for cheaper funds...(in the new system), its quite obvious that they will look for alternatives," Kamath said.