Banks meet on cards for base rate consensus

Source :BS Reporter / Mumbai May 27, 2010, 0:21 IST

The guessing game by banks on each other’s base rate is expected to be over soon when country’s top bankers meet – at the behest of State Bank of India (SBI) – to discuss the new loan pricing mechanism.

The meeting would precede SBI’s base rate announcement on June 15, a fortnight before its roll out, SBI Chairman O P Bhatt said today.
   

Most banks are yet to decide about their base rate and the parameters to be taken into account for calculating the new benchmark. A key parameter is the cost of funds, which can cause a huge variance across banks. For example, if a bank takes overnight cost of funds, which is very low, its base rate will also be significantly lower from a bank, which, for example, takes one-year average cost of funds into account.

As a result, most banks are eagerly awaiting the move by the country’s largest lender, SBI. This meeting assumes significance, as bankers will get to know what their colleagues in other banks are contemplating and help put in place an industry-wide consensus.

Last year, the Reserve Bank of India (RBI) had constituted a committee under Executive Director Deepak Mohanty to review the present system of benchmark prime lending rate. The move was aimed at bringing about greater transparency in risk pricing. The regulator issued the final guidelines in April, but the decision about mechanism was left completely in the hands of banks.

Bhatt said SBI would have three more internal meetings to finally decide on the number. He, however, hinted that the bank’s base rate could be around 8 per cent. The bank will announce its base rate a fortnight before the scheduled roll out, so that its staff gets familiar with the model and the calculation.

Meanwhile, the country’s second-largest state-run lender, Punjab National Bank, today said its base rate might be around 8-8.5 per cent.