|
Chronology of Policy Changes with Regard to PLR
October 1994 |
Banks would determine their own lending rates for credit limits over Rs. 2 lakh. However, banks were required to declare their Prime lending rate (PLR) with the approval of their Boards taking into account their cost of funds, transaction cost, etc. |
February 1997 |
To enable a smooth transition to the loan system as opposed to cash credit system of credit delivery. PLRs for the cash credit and demand loan component might be declared separately. |
October 1997 |
Banks allowed to announce, with the approval of the their Boards separate Prime Term Lending Rates (PTLR for term loans of 3 years and above. |
April 1998 |
In order to remove the disincentive to the flow of credit to small borrowers below Rs.2 lakh, instead of prescribing a specific rate uniformily for all banks, PLR was converted a ceiling rate on loans up to Rs.2 lakh. Banks were allowed to charge fixed/floating rate loan at or above PLR for credit limit of over Rs.2 lakh. |
April 1999 |
The concept of Tenor linked Prime Lending Rates (TPLRs) was introduced to give the Scheduled Commercial Banks more operational flexibility. |
October 1999 |
Banks were given the flexibility to charge interest rates without reference to the PLR in respect of certain categories of loans/credit like discounting of bills, lending to intermediary agencies, etc. |
April 2000 |
Banks were given the freedom to offer loans on fixed or floating basis. However, for small loans up to Rs. 2 lakh, the stipulation of not exceeding PLR (of relevant maturity) continued. |
April 2001 |
Keeping in view the international practice and to provide further operational flexibility to commercial banks in deciding their lending rates, it was decided to make PLR a benchmark rate. Accordingly, commercial banks were allowed to lend at sub-PLR rate for loans above Rs.2 lakh. |
April 2002 |
The Reserve Bank had indicated the intention of collecting PLR as well as the maximum and minimum interest rates on advances charged by the banks and place the same in public domain for customers’ protection and meaningful competition. Accordingly, the bank-wise information on the same is disseminated in the RBI web site for each quarter starting from the quarter ended June 2002. |
April 2003 |
In order to enhance transparency in banks’ pricing of their loan products, the Reserve Bank advised banks to announce a benchmark PLR with the approval of their Boards. Banks were advised to consider their (i) actual cost of funds, (ii) operating expenses and (iii) a minimum margin to cover regulatory requirement of provisioning/capital charge and profit margin, while arriving at the benchmark PLR to ensure that the PLR truly reflects the actual cost. Since all other lending rates can be determined with reference to the benchmark PLR arrived at, as above, by taking into account term premia and/or risk premia, the system of tenor-linked PLR was proposed to be discontinued. |
November 2003 |
IBA Advisory on adoption of BPLR |
Annex – 2
An Analysis of the Responsiveness of BPLRs to the Policy Rates and Liquidity Conditions
An AR(1) estimation of the changes in modal BPLR to changes in policy rates and weighted average call money rate was attempted for the period 2004 Q1 to 2009 Q1. For the purpose of analysis the policy rates changes and weighted average call money rates were bifurcated into episodes of tightening and easing of policy rates. The contemporaneous and lagged impacts of an increase and a decrease in policy rates and weighted call money rates on BPLRs were estimated to analyse the responsiveness of BPLR of various bank groups to movements in policy rates.
The results of an AR(1) estimation on changes in modal BPLR with respect to changes in repo rate for the period 2004 Q1 to 2009 Q1 is given below:
Public Sector Banks Sample 2004Q1 - 2009Q1 |
Dependant Variable : Change in Modal BPLR |
Explanatory Variables |
Contemporaneous Repo Rate Change |
Repo Rate Change in Previous Quarter |
Repo Rate Change in two Quarters before |
Increase in Repo Rate |
… |
0.89
(2.06)* |
… |
Decrease in Repo Rate |
0.66
(2.96)* |
… |
… |
DW statistic : 2.02 R bar squared : 0.47 |
Private Banks Sample 2004Q1 - 2009Q1 |
Dependant Variable : Change in Modal BPLR |
Explanatory Variables |
Contemporaneous Repo Rate Change |
Repo Rate Change in Previous Quarter |
Repo Rate Change in two Quarters before |
Increase in Repo Rate |
1.05
(2.05)* |
… |
1.94
(2.82)* |
Decrease in Repo Rate |
… |
… |
… |
DW statistic : 2.36 R bar squared : 0.33 |
5 Major Foreign Banks Sample 2004Q1 - 2009Q |
Dependant Variable : Change in Modal BPLR |
Explanatory Variables |
Contemporaneous Repo Rate Change |
Repo Rate Change in Previous Quarter |
Repo Rate Change in two Quarters before |
Increase in Repo Rate |
0.77
(2.00)* |
… |
… |
Decrease in Repo Rate |
… |
… |
… |
DW statistic : 1.69 R bar squared : 0.17 |
Note: * denotes t value at 5 per cent level of significance ... : Not significant at 5 per cent level |
The results of an AR(1) estimation on changes in modal BPLR with respect to changes in reverse repo rate for the period 2004 Q1 to 2009 Q1 is given below:
Public Sector Banks Sample 2004Q1 - 2009Q |
Dependant Variable : Change in Modal BPLR |
Explanatory Variables |
Contemporaneous Reverse Repo Rate Change |
Reverse Repo Rate Change in Previous Quarter |
Reverse Repo Rate Change in two Quarters before |
Increase in Reverse Repo Rate |
… |
… |
… |
Decrease in Reverse Repo Rate |
… |
… |
… |
DW statistic : 2.07 R bar squared : 0.37 |
Private Banks Sample 2004Q1 - 2009Q1 |
Dependant Variable : Change in Modal BPLR |
Explanatory Variables |
Contemporaneous Reverse Repo Rate Change |
Reverse Repo Rate Change in Previous Quarter |
Reverse Repo Rate Change in two Quarters before |
Increase in Reverse Repo Rate |
… |
… |
… |
Decrease in Reverse Repo Rate |
… |
… |
… |
DW statistic : 2.43 R bar squared : 0.02 |
5 Major Foreign Banks Sample 2004Q1 - 2009Q |
Dependant Variable : Change in Modal BPLR |
Explanatory Variables |
Contemporaneous Reverse Repo Rate Change |
Reverse Repo Rate Change in Previous Quarter |
Reverse Repo Rate Change in two Quarters before |
Increase in Reverse Repo Rate |
… |
… |
… |
Decrease in Reverse Repo Rate |
… |
… |
… |
DW statistic : 1.69 R bar squared : 0.17 |
Note: * denotes t value at 5 per cent level of significance ... : Not significant at 5 per cent level |
The results of an AR(1) estimation on changes in modal BPLR with respect to changes in weighted average call money rate for the period 2004 Q1 to 2009 Q1 is given below:
Public Sector Banks Sample 2004Q1 - 2009Q1 |
Dependant Variable : Change in Modal BPLR |
Explanatory Variables |
Contemporaneous Weighted Average Call Money Change |
Weighted Average Call Market Change
in Previous Quarter |
Weighted Average Call Market Change
in two Quarters before |
Increase in Weighted Average Call Money Rate |
0.38
(2.92)* |
… |
… |
Decrease in Weighted Average Call Money Rate |
… |
… |
0.27
(2.10)* |
DW statistic : 1.73 R bar squared : 0.37 |
Private Banks Sample 2004Q1 - 2009Q1 |
Dependant Variable : Change in Modal BPLR |
Explanatory Variables |
Contemporaneous Weighted Average Call Money Change |
Weighted Average Call Market Change
in Previous Quarter |
Weighted Average Call Market Change
in two Quarters before |
Increase in Weighted Average Call Money Rate |
0.32
(2.74) |
… |
… |
Decrease in Weighted Average Call Money Rate |
-0.30
(-2.52) |
0.40
(3.42) |
… |
DW statistic : 2.16 R bar squared : 0. 54 |
5 Major Foreign Banks Sample 2004Q1 - 2009Q |
Dependant Variable : Change in Modal BPLR |
Explanatory Variables |
Contemporaneous Weighted Average Call Money Change |
Weighted Average Call Market Change
in Previous Quarter |
Weighted Average Call Market Change
in two Quarters before |
Increase in Weighted Average Call Money Rate |
0.33
(3.52) |
… |
… |
Decrease in Weighted Average Call Money Rate |
… |
… |
… |
DW statistic : 1.99 R bar squared : 0.37 |
Note: * denotes t value at 5 per cent level of significance ... : Not significant at 5 per cent level |
Annex 3: Outstanding Sub-BPLR lending of SCBs |
(Percentage of share in total loans excluding small loans and export credit) |
Credit Type |
Mar-02 |
Jun-02 |
Mar-03 |
Dec-03 |
Sep-04 |
Dec-04 |
Mar-05 |
Sep-05 |
Mar-06 |
Sep-06 |
Mar-07 |
Jun-07 |
Sep-07 |
Dec-07 |
Mar-08 |
Jun-08 |
Sep-08 |
Dec-08 |
Mar-09 |
i) Cash Credit |
5.4 |
5.3 |
6.5 |
6.6 |
9.5 |
6.2 |
7.7 |
10.3 |
11.7 |
12.6 |
13.2 |
14.0 |
12.5 |
13.3 |
14.0 |
13.9 |
12.9 |
12.4 |
12.4 |
ii) Consumer Credit |
0.6 |
1.5 |
3.3 |
8.1 |
7.7 |
6.5 |
8.7 |
10.7 |
8.1 |
10.3 |
10.7 |
9.0 |
8.9 |
10.5 |
8.9 |
8.1 |
8.7 |
7.5 |
3.7 |
iii) Demand Loan
(including bill
discounting) |
5.9 |
8.6 |
6.9 |
7.3 |
7.6 |
5.8 |
8.2 |
7.8 |
7.4 |
5.7 |
6.4 |
6.5 |
6.4 |
8.3 |
8.5 |
11.4 |
8.2 |
6.0 |
6.9 |
iv) Term Loans |
16.5 |
22.7 |
21.0 |
26.7 |
31.3 |
46.5 |
34.4 |
38.0 |
41.9 |
46.7 |
46.6 |
46.3 |
50.1 |
44.2 |
44.3 |
44.2 |
46.9 |
46.1 |
43.9 |
a) 1-180 days |
2.8 |
7.3 |
3.0 |
2.3 |
1.7 |
2.0 |
2.6 |
2.3 |
3.4 |
2.8 |
2.9 |
3.3 |
3.1 |
4.6 |
5.7 |
4.2 |
3.6 |
3.0 |
3.1 |
b) 180 days-1 year |
1.0 |
2.9 |
1.0 |
1.3 |
1.8 |
1.5 |
2.1 |
1.6 |
1.9 |
2.0 |
1.9 |
1.7 |
1.7 |
2.0 |
2.3 |
2.1 |
1.9 |
2.0 |
2.2 |
c)1-3 years |
1.6 |
2.9 |
1.9 |
3.0 |
3.4 |
2.7 |
4.6 |
4.5 |
5.6 |
5.8 |
5.2 |
5.3 |
5.3 |
6.3 |
6.1 |
7.7 |
6.3 |
5.8 |
5.3 |
d) 3-5 years |
1.4 |
2.4 |
4.8 |
10.4 |
10.9 |
10.1 |
11.2 |
14.5 |
14.0 |
18.2 |
17.7 |
17.2 |
20.1 |
9.8 |
11.7 |
10.0 |
17.9 |
15.7 |
15.7 |
e)above 5 years |
6.4 |
3.4 |
6.6 |
5.3 |
8.9 |
27.1 |
10.2 |
11.2 |
12.6 |
13.6 |
14.7 |
14.9 |
12.7 |
17.1 |
13.7 |
15.4 |
13.3 |
13.3 |
13.7 |
f) Others |
3.5 |
3.9 |
3.8 |
4.4 |
4.7 |
3.2 |
3.7 |
3.9 |
4.5 |
4.3 |
4.3 |
3.9 |
7.3 |
4.5 |
5.0 |
4.8 |
3.9 |
6.3 |
4.0 |
Total (i to iv) as
percenatage of
all loans |
28.4 |
38.0 |
37.7 |
48.7 |
56.1 |
65.1 |
58.9 |
66.8 |
69.2 |
75.3 |
76.9 |
75.8 |
77.9 |
76.3 |
75.8 |
77.6 |
76.7 |
72.0 |
66.9 |
Annex 4: Outstanding Sub-BPLR lending of PSBs
(Percentage of share in total loans excluding small loans and export credit)
Credit Type |
Mar-07 |
Jun-07 |
Sep-07 |
Dec-07 |
Mar-08 |
Jun-08 |
Sep-08 |
Dec-08 |
Mar-09 |
i) Cash Credit |
14.3 |
15.6 |
13.4 |
15.4 |
15.5 |
14.3 |
12.9 |
12.6 |
12.2 |
ii) Consumer Credit |
1.3 |
1.1 |
1.0 |
1.7 |
1.0 |
2.7 |
2.5 |
2.2 |
2.2 |
iii) Demand Loan
(including bill discounting) |
5.9 |
6.3 |
5.9 |
8.0 |
8.0 |
12.6 |
7.7 |
5.2 |
6.3 |
iv) Term Loans |
51.7 |
50.2 |
54.8 |
47.5 |
46.7 |
44.3 |
50.0 |
48.7 |
43.6 |
a) 1-180 days |
1.9 |
2.5 |
2.0 |
3.3 |
5.3 |
3.1 |
2.8 |
2.3 |
2.6 |
b) 180 days-1 year |
1.4 |
1.4 |
1.3 |
1.8 |
1.7 |
1.9 |
1.4 |
1.6 |
1.9 |
c)1-3 years |
5.0 |
4.8 |
4.8 |
6.5 |
5.7 |
7.8 |
5.8 |
5.1 |
4.8 |
d) 3-5 years |
22.4 |
21.3 |
24.9 |
11.3 |
13.3 |
10.1 |
22.2 |
18.4 |
17.3 |
e)above 5 years |
16.0 |
15.5 |
12.7 |
19.0 |
14.7 |
16.1 |
13.2 |
13.6 |
12.6 |
f) Others |
5.0 |
4.7 |
9.0 |
5.5 |
6.0 |
5.3 |
4.6 |
7.7 |
4.4 |
Total (i to iv) as
percenatage of
all loans |
73.2 |
73.2 |
75.0 |
72.6 |
71.2 |
73.8 |
73.1 |
68.7 |
64.2 |
Annex 5: Outstanding Sub-BPLR lending of Private Banks
(Percentage of share in total loans excluding small loans and export credit)
Credit Type |
Mar-07 |
Jun-07 |
Sep-07 |
Dec-07 |
Mar-08 |
Jun-08 |
Sep-08 |
Dec-08 |
Mar-09 |
i) Cash Credit |
11.7 |
11.0 |
11.1 |
10.2 |
11.8 |
13.3 |
13.9 |
13.3 |
16.0 |
ii) Consumer Credit |
38.3 |
32.3 |
33.5 |
32.3 |
28.1 |
25.3 |
23.3 |
23.3 |
5.1 |
iii) Demand Loan (including bill discounting) |
7.3 |
6.0 |
5.9 |
6.4 |
8.6 |
7.4 |
7.2 |
6.9 |
6.5 |
iv) Term Loans |
33.9 |
38.7 |
37.6 |
37.5 |
40.1 |
42.9 |
45.1 |
44.5 |
55.8 |
a) 1-180 days |
4.2 |
3.6 |
4.4 |
5.3 |
4.6 |
6.5 |
5.5 |
4.7 |
4.2 |
b) 180 days-1 year |
2.4 |
2.1 |
2.2 |
2.0 |
3.1 |
2.2 |
2.5 |
2.5 |
3.7 |
c)1-3 years |
5.0 |
6.4 |
6.1 |
5.8 |
7.2 |
7.0 |
8.0 |
8.3 |
8.1 |
d) 3-5 years |
7.1 |
8.6 |
8.0 |
7.5 |
9.5 |
10.4 |
9.6 |
9.9 |
11.2 |
e)above 5 years |
13.0 |
16.0 |
14.8 |
15.1 |
13.3 |
14.1 |
17.1 |
16.2 |
25.7 |
f) Others |
2.2 |
2.0 |
2.2 |
1.9 |
2.4 |
2.8 |
2.4 |
2.8 |
2.9 |
Total (i to iv) as
percenatage of
all loans |
91.2 |
88.0 |
88.2 |
86.4 |
88.7 |
89.0 |
89.5 |
87.9 |
83.5 |
Annex 6: Outstanding Sub-BPLR lending of Foreign Banks
(Percentage of share in total loans excluding small loans and export credit)
Credit Type |
Mar-07 |
Jun-07 |
Sep-07 |
Dec-07 |
Mar-08 |
Jun-08 |
Sep-08 |
Dec-08 |
Mar-09 |
i) Cash Credit |
7.1 |
7.0 |
7.8 |
5.2 |
7.6 |
9.3 |
10.3 |
6.7 |
6.8 |
ii) Consumer Credit |
21.0 |
17.9 |
22.4 |
21.0 |
21.7 |
7.2 |
23.1 |
21.2 |
24.3 |
iii) Demand Loan (including bill discounting) |
9.0 |
9.9 |
13.3 |
15.9 |
12.6 |
14.4 |
15.8 |
13.2 |
16.0 |
iv) Term Loans |
33.5 |
31.4 |
35.1 |
35.8 |
35.8 |
50.2 |
21.2 |
20.4 |
20.5 |
a) 1-180 days |
8.1 |
9.7 |
10.6 |
13.5 |
13.0 |
12.6 |
5.6 |
6.4 |
7.3 |
b) 180 days-1 year |
5.5 |
3.7 |
3.6 |
3.3 |
4.5 |
4.7 |
4.4 |
5.3 |
3.5 |
c)1-3 years |
7.5 |
6.8 |
7.9 |
5.7 |
6.3 |
10.3 |
6.2 |
5.7 |
6.2 |
d) 3-5 years |
3.0 |
3.1 |
3.5 |
3.5 |
3.5 |
3.8 |
1.8 |
1.6 |
1.7 |
e)above 5 years |
6.6 |
5.9 |
6.4 |
6.2 |
5.4 |
9.1 |
1.3 |
1.0 |
1.1 |
f) Others |
2.7 |
2.3 |
3.2 |
3.7 |
3.2 |
9.8 |
2.0 |
0.4 |
0.7 |
Total (i to iv) as
percenatage of
all loans |
70.6 |
66.3 |
78.5 |
77.9 |
77.6 |
81.2 |
70.5 |
61.5 |
67.5 |
Annex 7: Spread on Interest rate excluding 5% business for term
loan contracted at extreme rate
(per cent) |
Year |
PSBs |
Private Sector Banks |
Five Major Foreign Banks |
|
Modal
BPLR |
Max Spread |
Min Spread |
Modal
BPLR |
Max Spread |
Min Spread |
Modal
BPLR |
Max
Spread |
Min
Spread |
Mar 04 |
11.00 |
5.00 |
-5.25 |
12.00 |
9.50 |
-9.00 |
12.75 |
9.25 |
-9.40 |
Jun 04 |
11.00 |
5.00 |
-6.20 |
12.00 |
10.25 |
-8..00 |
12.75 |
10.00 |
-7.8 |
Sep 04 |
11.00 |
5.00 |
-6.00 |
12.00 |
10.25 |
-8.00 |
12.75 |
10.00 |
-9.65 |
Dec 04 |
11.00 |
8.50 |
-7.00 |
12.00 |
11.00 |
-8.50 |
12.75 |
10.00 |
-8.05 |
|
|
|
|
|
|
|
|
|
|
Mar 05 |
11.00 |
4.50 |
-7.00 |
11.50 |
8.50 |
-8.50 |
12.75 |
10.00 |
-8.52 |
Jun 05 |
11.00 |
5.00 |
-7.00 |
11.50 |
11.44 |
-8.00 |
12.75 |
12.00 |
-7.74 |
Sep 05 |
11.00 |
4.50 |
-7.00 |
12.00 |
8.50 |
-8.00 |
12.75 |
12.00 |
-9.89 |
Dec 05 |
11.00 |
5.00 |
-7.00 |
12.00 |
7.00 |
-8.00 |
12.75 |
11.00 |
-9.89 |
|
|
|
|
|
|
|
|
|
|
Mar 06 |
11.00 |
5.00 |
-7.00 |
12.00 |
7.00 |
-8.00 |
12.75 |
13.25 |
-7.74 |
Jun 06 |
11.25 |
4.50 |
-7.50 |
12.50 |
13.50 |
-8.50 |
12.75 |
12.00 |
-7.74 |
Sep 06 |
11.50 |
4.50 |
-7.50 |
13.00 |
11.50 |
-8.50 |
12.75 |
10.00 |
-7.74 |
Dec 06 |
11.50 |
4.50 |
-7.50 |
13.00 |
11.00 |
-8.50 |
12.75 |
10.75 |
-7.74 |
|
|
|
|
|
|
|
|
|
|
Mar 07 |
12.50 |
4.50 |
-8.50 |
14.00 |
11.00 |
-10.50 |
13.50 |
12.75 |
-8.93 |
Jun 07 |
13.25 |
4.50 |
-9.25 |
15.00 |
11.00 |
-10.43 |
14.50 |
12.50 |
-8.6 |
Sep 07 |
13.25 |
4.50 |
-9.25 |
14.00 |
9.50 |
-11.00 |
14.50 |
12.50 |
-8.5 |
Dec 07 |
13.25 |
4.50 |
-9.25 |
15.00 |
7.00 |
-11.00 |
14.50 |
11.50 |
-8.5 |
|
|
|
|
|
|
|
|
|
|
Mar 08 |
13.25 |
5.00 |
-9.25 |
15.00 |
7.00 |
-11.00 |
14.25 |
12.50 |
-8.2 |
Jun 08 |
13.00 |
5.00 |
-9.25 |
15.25 |
9.75 |
-10.94 |
14.50 |
5.5 |
-8.79 |
Sep 08 |
14.00 |
4.50 |
-7.50 |
16.00 |
7.00 |
-11.94 |
15.50 |
4.25 |
-9.79 |
Dec 08 |
13.25 |
4.50 |
-6.50 |
15.75 |
13.00 |
-11.44 |
15.50 |
4.75 |
-9.29 |
|
|
|
|
|
|
|
|
|
|
Mar 09 |
12.50 |
4.50 |
-6.85 |
16.75 |
10.00 |
-11.44 |
15.25 |
4.75 |
-9.29 |
Annex 8
Representatives from Industry Associations |
Shri Ajit Ranade |
Chief Economist,
Confederation of Indian Industry |
Shri V.Kumaraswamy |
CFO, JK Papers Ltd,
Federation of Indian Chamber of Commerce & Industry |
Shri. M.V. S. Seshagiri Rao |
Dir(Fin), Jindal Vijaynagar Steel Ltd
Associated Chamber of Commerce & Industry of India |
Shri Thakkar |
Co Chairman of Committee on Finance & Banking, Indian Merchant Chamber |
Dr Dhananjay Samant |
O-in-C, Banking & Finance Committee,
Indian Merchant Chamber |
Shri Sharad Kumar Saraf |
VP & Chairman (WR),
Federation of Indian Export Organisation |
Shri Anand Ladsarya |
Managing Committee Member,
Federation of Indian Export Organisation |
Shri Ramesh Iyer |
Chairman of Bkg. & Fin. Committee,
Bombay Chamber of Commerce & Industry |
Dr Atindra Sen |
Dir.Gen.,
Bombay Chamber of Commerce & Industry |
Dr Shubhada M Rao |
Chairman of Economic Policy & Corporate Strategy,
Bombay Chamber of Commerce & Industry |
Shri S.J.Balesh |
Co-Chairman, Bkg.&Fin. Committee,
Bombay Chamber of Commerce & Industry |
Shri Ravi |
Chief Fin.Officer, M&M Fin.Services, Bombay Chamber of Commerce & Industry |
Shri K. Chandra Sekar |
Sr. VP. Corp Fin,
Bombay Chamber of Commerce & Industry |
Shri Chandrakant Salunkhe |
President, Small & Medium Business Development Chamber of India |
Shri S.K.Sarkar |
Member, Federation of Indian Micro and Small & Medium Enterprises |
Shri S. S. Rathi |
National President, Federation of Association of Small Industries of India |
Shri Avinash Dalal |
Ex Comm, Federation of Association of Small Industries of India |
Shri Purushottam |
Thane Small Scale Industries Association |
Annex 9
People who Contributed Suggestions to the Working Group |
Abhishank Jajur |
abhishank.jajur@gmail.com |
Ajay Garg |
M/S Ajay Garg and Associates, Faridabad |
Anupam Shah |
President, Merchant Chambers of Commerce, Kolkatta |
Anand |
anand186@rediff.com |
Ashok K |
ashokk018@yahoo.com |
Ajit Rathore |
ajit.rathore@gmail.com |
Chanderpur Works Pvt. Ltd |
|
Gopalan T R |
Tata Consultancy Services |
Gupta |
Gupta31641@rediffmail.com |
Hirnesh B Havsar |
hirnesh@rediffmail.com |
Indian Bank |
ibhocredit@dataone.in |
K G K Subba Rao |
|
K. Kanagasabapathy |
EPW Research Foundation, Mumbai |
Mahendra Dohare |
Mahendra_dohare@yahoo.co.in |
P Balagopala Kurup |
General Manager, Indian Overseas Bank, Central Office, Chennai |
P C John |
Integrated Risk Management Department, Federal Bank, Alwaye |
P D Sharma |
President, Apex Chamber of Commerce and Industry (Punjab) |
P S Nagarsheth |
President, Iron Steel Scrap & Shipbreakers Association of India |
Punit Srivastava |
Senior Vice President, Banking & Finance, Daiwa SMBC Securities |
R. K. Gupta |
Faridabad |
S H Prashad |
|
S Ramesh Kumar |
Senior Vice President, Asit C Mehta Investment Intermediates Ltd. |
Dr. T V Gopalakrishnan, |
Bangalore |
V Harikrishnan |
vharikrishnan@yahoo.com |
Annex 10: PLR - International Experience |
|
United States |
Japan |
Russia |
1 |
2 |
3 |
4 |
1. % of bank lending linked to PLR |
Between 10% and 25% |
It is mostly for housing loans and small companies & not for small corporates |
Between 10% and 25% |
2. Presence of sub-PLR lending |
significant lending below the US Prime Rate |
Sub-BLPR lending exist |
Hardly any sub-PLR lending |
3. Determination of PLR |
Prime Rate generally set at Fed Target plus 300bp |
Cost plus |
Cost plus |
4. Frequency in review of PLR |
As FOMC changes their Fed Target rate
(approx 8 times a year) |
LT rate is set monthly. ST rates are reviewed as needed |
No |
5. The range and dispersion of PLR amongst various players (lenders / banks) |
Banks have almost the same PLR |
Dispersion in a narrow range
2 |
Dispersion over a moderate range
3 |
6. Elasticity of PLR in relation to deposit costs in your country |
Elasticity is very high
1 |
Elasticity is high
2 |
Moderate
3 |
7. Correlation of PLR to the observable interest rate market benchmarks |
Low correlation
4 |
High correlations
2 |
Low Correlation
4 |
8. Correlation of PLR to the Central Bank’s policy rates |
Very high correlation
1 |
High Correlation
2 |
Moderate Correlation
3 |
9. Do multiple Prime lending rates exist |
No |
No |
No |
10. Is there different PLRs for wholesale borrowers |
|
No |
No |
11. Tenor-wise term structure of PLR |
|
Yes
Short-term and long term |
Yes |
12.Is the PLR computation done bottoms-up |
Fixed spread over the fed target rate
(at 300bps) |
Yes |
No |
Source : Survey by Citibank, India |
Note: On a Scale of 1 to 5 - 1 implies dispersion in a tight range and 5 implies dispersion in a wide range for question 5. For Questions 6, 7, 8 on a scale of 1 to 5, 1 implies very high correlation and 5 implies very low correlation. |
Annex 10: PLR – International Experiences (continued) |
|
Brazil |
Hong Kong |
Malaysia |
Poland |
1 |
5 |
6 |
7 |
8 |
1. % of bank lending linked to PLR |
CDI is the interbank overnight rate |
Between 10% and 25% |
Between 50% and 75% |
Between 10% and 25% |
2. Presence of sub-PLR lending |
Hardly any sub-PLR lending |
Sub-PLR lending exists |
Sub-PLR lending exist |
Sub-PLR lending exist |
3. Determination of PLR |
CDI is always very close to SELIC rate, Central bank monitors CDI to avoid discrepancy between the two |
Cost plus and also determined by competitive forces |
PLR can be changed, however reasons for it have to be given to central bank |
WIBOR determined by competitive forces. Spread takes into account mainly cost of funding, type and tenor of the loan |
4. Frequency in review of PLR |
No |
No |
No |
No |
5. The range and dispersion of PLR amongst various players (lenders / banks) |
Dispersion is in a very tight range
1 |
Dispersion is in a very tight range
1 |
Dispersion in a tight range
2 |
Dispersion in a tight range
2 |
6. Elasticity of PLR in relation to deposit costs in your country |
Very high correlation
1 |
High Correlation
2 |
Very highly correlated with corporate short-term deposit.
Low correlation with retail deposit |
High Correlation
2 |
7. Correlation of PLR to the observable interest rate market benchmarks |
Very high correlation
1 |
Very low correlation
5 |
Very low correlation
5 |
Moderate Correlation
3 |
8. Correlation of PLR to the Central Bank’s policy rates |
Very high correlation
1 |
High correlation |
Very high correlation
1 |
Moderate Correlation
3 |
9. Do multiple Prime lending rates exist |
Yes |
No |
No |
Yes |
10.Is there different PLRs for wholesale borrowers |
No |
No |
No |
Yes |
11. Tenor-wise term structure of PLR |
No |
Yes |
No |
Yes |
12. Is the PLR computation done bottoms-up |
No. CDI is the average rate of all overnight interbank loans |
Based on funding cost, credit cost, operating cost and competition |
No |
Total PLR rate includes funding costs, credit costs, operational costs |
Source : Survey by Citibank, India |
Annex 10: PLR – International Experiences (continued) |
|
Singapore |
Taiwan |
South Africa |
1 |
9 |
10 |
11 |
1. % of bank lending linked to PLR |
Between 10% and 25% |
Between 50% and 75% |
Lending to individuals linked to PLR. Lending to corporate sector linked to floating rates (JIBAR) or PLR |
2. Presence of sub-PLR lending |
Sub-PLR lending exist |
Sub-PLR lending does not exist |
Banks lend at a fixed spread to PLR based on customer’s credit quality |
3. Determination of PLR |
Cost plus as well as competitive forces |
Cost plus |
Industry body administers PLR, after extensive negotiations with Central Banks |
4. Frequency in review of PLR |
No |
No |
No. Linked to repo rate set by SA Reserve Bank |
5. The range and dispersion of PLR amongst various players (lenders / banks) |
Dispersion in a tight range
2 |
Dispersion in a wide range
4 |
Dispersion in a very tight range
1
It is same for all the banks |
6. Elasticity of PLR in relation to deposit costs in your country |
Low Correlation
4 |
Tight Correlation
2 |
Tight Correlation
2
Repo rate determined PLR. Deposit rates are heavily influence by repo rate , though liquidity condition also see deposit rate change |
7. Correlation of PLR to the observable interest rate market benchmarks |
Very Low Correlation
5 |
Low Correlation
4 |
Very Low Correlation
5 |
8. Correlation of PLR to the Central Bank’s policy rates |
Very low Correlation
5 |
Low Correlation
4 |
Very tight correlation
1 |
9. Do multiple Prime lending rates exist |
No. Other BM like SIBOR, SOR exist for pricing loans etc. |
No |
No |
10. Is there different PLRs for wholesale borrowers |
No |
Yes |
No |
11. Tenor-wise term structure of PLR |
No |
No |
No
PLR is an overnight rate |
12. Is the PLR computation done bottoms-up |
Main components are reserve cost and credit cost |
Main components are deposit rate and operation cost |
No
It’s a fixed spread to the Central Bank policy rate |
Source : Survey by Citibank, India |
Annex 11 : Base Rate : An illustration |
Components |
|
|
a. |
One year Term Deposit rate |
|
6.50% |
b. |
Less: CASA Adjustment (Factor 1 +Factor 2) |
|
1.31% |
c. |
Negative Carry on CRR and SLR |
|
0.96% |
d. |
Unallocated Overhead Cost |
|
0.99% |
e. |
Average Return on Net worth |
|
1.41% |
Base Rate ( a-b+c+d+e) |
|
8.55% |
Computation of the Base Rate : An illustration |
|
|
1 |
Assumptions |
|
|
|
Total Deposits |
100 |
Rs. Crore |
|
Savings Bank Deposits (SB) |
22 |
Rs. Crore |
|
Current Account Balances (CA) |
10 |
Rs. Crore |
2 |
Positive Carry on CASA |
|
|
|
Savings Bank rate (SB rate) |
3.50% |
|
|
Difference (TD rate- SB rate) |
3.00% |
|
|
Proportion of Savings Bank Deposits (SBSHARE) |
22.00% |
|
|
Factor 1 ( SBSHARE * Difference in TD and SB Rate) |
0.66% |
|
|
Proportion of Current Account (CASHARE) |
10.00% |
|
|
Factor 2 ( CASHARE* TD rate) |
0.65% |
|
3 |
Negative Carry on CRR and SLR |
|
|
|
Interest Cost on Deposits (1 year Deposit Rate) |
6.50% |
|
|
Assuming that Total Deposits |
100 |
Rs. Crore |
|
Returns required from Deposits |
6.50 |
Rs. Crore |
|
CRR (as per cent of total deposits) |
5.00% |
|
|
CRR Balances |
5 |
Rs. Crore |
|
SLR (as per cent of total deposits) |
24.00% |
|
|
SLR Balances |
24 |
Rs. Crore |
|
Deployable Deposits |
71 |
Rs. Crore |
|
Deployable Deposits (as per cent of total deposits) |
71.00% |
|
|
364 Treasury Bill Yield |
5.00% |
|
|
Return on SLR Balances |
1.20% |
|
|
Interest Cost on Deposits( 1 year Deposit Rate) adjusted for SLR return |
5.30% |
|
|
Returns required from Deployable Deposits to account for deposit interest cost |
7.46% |
|
|
Negative Carry Charge on CRR and SLR |
0.96% |
|
4 |
Unallocated Overhead Cost |
|
|
|
Fixed Overheads comprise of HO and CO costs which cannot be allocated |
|
|
|
Total Unallocatable Cost |
1 |
Rs. Crore |
|
Assuming the total deposits ( including CDs) are |
100 |
Rs. Crore |
|
Deposits Available for Deployment |
71 |
Rs. Crore |
|
Unallocated Fixed Overheads as a percentage of deployed funds |
0.99% |
|
5 |
Average Return on Net Worth |
|
|
|
Net Profit |
1 |
Rs. Crore |
|
Capital |
0.5 |
Rs. Crore |
|
Reserves (excluding Revaluation Reserves) |
10 |
Rs. Crore |
|
Net worth (Infused Capital or Equity)+ Reserves |
10.5 |
Rs. Crore |
|
Deposits Available for Deployment |
71 |
Rs. Crore |
|
Average Return on Equity |
0.10 |
|
|
Average Return on Net Worth = Return on Equity * Net Worth/Deployable Deposits |
1.41% |
|
|