Sub-PLR lending rates may go up, says RBI | india | Hindustan Times
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Sub-PLR lending rates may go up, says RBI

Reserve Bank deputy governor KC Chakrabarty on Friday said banks' lending rates to certain segments like short-term corporate loans could go up due to the existing mis-pricing, but felt that the overall rates will be stable.

india Updated: Feb 05, 2010 20:03 IST

Reserve Bank deputy governor KC Chakrabarty on Friday said banks' lending rates to certain segments like short-term corporate loans could go up due to the existing mis-pricing, but felt that the overall rates will be stable.

"Overall interest rates will remain the same... (However) in segments where interest rates are mis-priced, you could see some increase...like in short-term corporate loans," he told reporters in Mumbai.

Banks generally lend to customers, primarily corporate clients, at much lower rates below their benchmark prime lending rate (BPLR), popularly known as the sub-PLR rates.

Following earlier-than-expected economic recovery but amidst galloping food inflation, the RBI, in its third quarterly monetary policy review on January 29, begun an exit from the easy money regime by upping cash reserve ratio-- the amount of money banks have to keep with the RBI to meet prudential norms- by 0.75 per cent to 5. 75 per cent.

The banking system has enough liquidity to fund the infrastructure sector over the next two to three years, Chakrabarty said, however, adding in the long-term a corporate bond market will have to be developed to meet the huge the investment demand.

Noting that the RBI has been approached by banks for mandatory liquidity exemption for infrastructure bonds, Chakrabarty hinted that this may not be allowed as there is a possibility similar demand may come for other instruments as well.