Small debtors have reason to rejoice

MUMBAI: Small borrowers who lacked the bargaining power to obtain cheaper loans from banks can now look forward to lower rates with the RBI picking up cudgels on their behalf.

“There is an impression that some banks are charging exorbitant rates to smaller customers who cannot afford to bargain,� said K Cherian Varghese, CMD, Corporation Bank.

The RBI has always required banks to maintain their lending rates at a spread of 4 per cent above their prime lending rate. However, after introduction of sub-PLR lending, this spread had lost its meaning. Mr Varghese said that while the earlier prescription of a maximum spread has always existed there was a case for making it lower.

According to bankers, blue chip corporates who have large borrowings can bargain rates for funds at rates as low as 9 per cent per annum. However, there are smaller borrowers, particularly those at the retail level, who end up paying as much as 15 per cent per annum despite providing adequate collateral as security to the bank.

The RBI in its monetary policy said, “As per the latest available information, spreads above PLR of some banks are substantial. In the present interest rate environment, it is not reasonable to keep very high spreads over PLR.

Banks are, therefore, urged to review the present maximum spreads over PLR and reduce them wherever they are unreasonably high so that credit may be available to the borrowers at reasonable interest rates. Further, banks should also announce the maximum spread over PLR to the public along with the announcement of their PLR.�

RBI has said that it will visit the issue of lending at a reasonable spread over the prime lending rate again in October ’02 after further consultations with select banks with very high spread over PLR.