Base rate will jack-up loan cost for big firms: FICCI | business | Hindustan Times
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Base rate will jack-up loan cost for big firms: FICCI

business Updated: Jun 13, 2010 12:33 IST

Raising money from banks will be costlier for big firms after the introduction of the new regime of base rate -- a benchmark rate below which banks will not be allowed to lend money, a survey said.

"... An upward pressure on (lending) rates for corporates availing at ultra-low rate is imminent (after implementation of the base rate regime)," said a FICCI survey.

The new regime, which comes into effect from July, however, will help smaller companies negotiate better rates, it added.

Under the current structure, each bank declares the Benchmark Prime Lending Rate (BPLR) and advances credit to its customers at rates above or below the benchmark rate. The actual rate depends upon the credit rating of the borrower.

As part of the new system, banks will have to declare the base rate, depending upon the cost of funds, and lend to the borrowers above the declared rate. They will not be allowed to lend below the declared rate.

It said big corporates might resort to other low-cost financing options like Qualified Institutional Placement and External Commercial Borrowing, which could result in lower credit offtake from banks.