Costlier loans for big biz: 8% base rate looms

The stage appears set for migrating to a new interest rate regime, with banks set to announce their respective “base rates” beginning this week.

The stage appears set for migrating to a new interest rate regime, with banks set to announce their respective “base rates” beginning this week. Indications are that borrowing cost of large corporations could go up significantly.

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The “base rate” serves as the minimum rate for all loans. The system is to replace the existing benchmark prime lending rate (BPLR) system on July 1. The average base rate is expected to be around 8 per cent.

This is likely to affect top companies that have been borrowing at about 6 per cent. Small and medium enterprises, on the other hand, could gain.

At present, banks cross-subsidise low-cost loans to larger AAA-rated corporations by charging higher interest rates from smaller firms.

“The new system will help the small and medium enterprises while the larger corporations will have to pay more,” said T.Y Prabhu, CMD of Oriental Bank of Commerce.

“We will fix our rates around 8 per cent and will calculate the rate on the basis of the cost of deposits,” said O.P Bhatt said chairman of State Bank of India (SBI) said on Saturday.