Arbitrary Change In Base Rate Is Risky

More than three  years ago RBI has prescribed the concept of  Base rate for all banks in place of Prime Lending Rate called as PLR or Benchmark prime lending rate called as BPLR. It is observed that CMD of various banks treat Concept of Base rate in a casual manner and take decision on change of base rate in whimsical and arbitrary manner.

The Reserve Bank of India (RBI) committee on reviewing the benchmark prime lending rate (BPLR) recommended that the BPLR nomenclature be scrapped and a new benchmark rate — known as Base Rate — should replace it.   Base Rate is much more transparent and banks are not allowed to lend below the base rate (except for cases specified by RBI and given above).   

Base Rate is to be reviewed by the respective banks at least on quarterly basis and the same is to be disclosed publicly.   Moreover, the calculations of BPLR were mostly NOT transparent and banks were frequently lending below the BPLR to their prime borrowers and also under pressure due to various reasons.

It is very much disheartening, painful and dangerous trend in banks that they have started declaring new base rate in a totally arbitrary manner. Whenever finance minister put pressure on reducing lending rate, the core flatterer CMD of a bank come forward to announce reduction of rate, even in midnight or early in morning to please FM without undertaking required transparent exercise as required by RBI guidelines. They never bother whether bank will incur loss or net interest margin will fall. 

It is public money which is jeopardized by dint of whimsical decisions taken by CMD of a bank. Even members of Board of directors are blind followers of CMD and they are least bothered of bank's health and bank's capacity to sustain the loss caused to public money by unwise reduction in rates. They may increase rates on deposits and reduce rate on advances without taking care of health of bank. This is why these public sector banks are not in a position to manage adequate capital for compliance of Basel norms and neither are they in a position to maintain adequate liquidity in the system

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I remember the days from the year 2006 to 2009 during which period banks were ready to accept deposits at 13 to 15 percent rate of interest and they were ready to lend at Sub PLR rate and more astonishingly they used to earn profit by applying their clever mind of manipulation in provisions. 

And surprisingly RBI always remained silent spectator. RBI believes in certificates and PS banks are expert in furnishing fake certificate overnight to please RBI officials and to satisfy the ego of regulators.Management of PS banks as well as Trade Union Leaders of these bank turn their blind eyes on such risky decisions of chief of bank and it is this attitude which cause erosion in profits year after year and finally it is bank employees who are ultimately sufferer and it is they who are denied respectable wage hike.

Oriental Bank cuts lending rates for MSME advances

K. R. SRIVATS--Business Line

NEW DELHI, NOV 30:  

Oriental Bank of Commerce (OBC) has slashed its lending rate for MSME advances as part of its efforts to kickstart revival in this sector.

This public sector lender is confident of making good the revenue loss from such a move with expected increase in business volumes, S.L. Bansal, Chairman & Managing Director, OBC, told Business Line.

OBC may take a revenue hit of about Rs 30 crore in the remaining four months, but this could be covered with higher business volumes, Bansal added.

The basic purpose for the rate cut decision is to give a push to the MSME sector in the current times of economic slowdown, Bansal said.

Also, there is not much demand for credit from large corporates. MSME advances account for nearly 15 per cent of the total advances of the bank.

Micro, small enterprises

Lending rates for micro and small enterprises have been reduced from 25 basis points to 75 basis points for advances above Rs 25 lakh and up to Rs 1 crore.

For advances above Rs 1 crore, the reduction in interest rate ranges from 50 basis points to 200 basis points.

Medium enterprises

OBC has slashed the interest rate by 25 basis points to 150 basis points for advances up to Rs 1 crore.

For advances above Rs 1 crore, the lending rate reduction ranges from 50 basis points to 150 basis points.

Effective date

All the revision in lending rates will be effective December 1 and be applicable to all the existing as well as fresh advances sanctioned to MSMEs under manufacturing as well as services sector.

http://www.thehindubusinessline.com/industry-and-economy/banking/oriental-bank-cuts-lending-rates-for-msme-advances/article5408274.ece