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SBI sets base rate at 7.5 percent
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SME Times News Bureau | 29 Jun, 2010
India's largest public sector lender State Bank of India (SBI) on Tuesday fixed its benchmark lending rate at 7.5 percent, a move raising expectation that private banks and other lenders are also likely to peg their base rate closer to that of SBI to stay competitive in the corporate loan market.
The new SBI rate will come into effect from July 1.
"State Bank of India has fixed the base rate at 7.50 per annum with effect from July 1, 2010," the bank said in a regulatory filing to the Bombay Stock Exchange.
As per the recommendations of the Working Group on BPLR, the Reserve Bank of India (RBI) had recently decided that banks switch over to the system of Base Rate with effect from July 1.
However, banks are free till December 31 to choose the parameter using which the benchmark rate will be computed.
As per the BPLR system of determining lending rates, banks could charge varying interest on different categories of borrowers.
Businesses benefited from the system, with loans to them being routinely given at below BPLR rates, resulting in a situation where small and individual depositors ended up subsidising the corporate loans.
But with the new norm coming into play, no bank can give out funds at an interest rate lower than the base rate.
Each bank can, however, determine their own base rate, and most banks are in the process of announcing theirs before July 1.
The new base rate by SBI, which controls almost one-fifth of the total loans and advances in the country, will give tough competition to other private lenders and some of its peers to come up with a matching deal.
Markets are keenly watching what ICICI Bank, India's largest private lender, does, with its announcement on the base rate due Wednesday.
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