The proposed new “base rate” regime would prevent large corporations from taking an advantage of ample liquidity in the banking system and negotiate competitive interest rates, State Bank of India (SBI) chairman OP Bhatt said.
In a far-reaching reform measure, the Reserve Bank of India (RBI) proposed to introduce a new concept called “base rate” that would serve as the minimum rate for all loans.
“Corporate lending is being done on fairly competitive rates but that is for large corporations, which is a function of high liquidity,” Bhatt told reporters on Monday on the sidelines of a function organised by the All India Management Association (AIMA).
“But once there is a base or floor rate it would not be possible to do that,” he said.
The base rate system, which replaces the existing benchmark prime lending rate (BPLR) system from April 1, is being introduced to make bank lending more transparent.
“The corporations will not be able to get funds at lower than the base rate even in conditions of high liquidity,” Bhatt said.
At present about 70 per cent of bank loans are offered at less than BPLR.