The Telegraph
Since 1st March, 1999
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Sector-specific lending rates gain support

Calcutta, July 19: Flush with funds, commercial banks in the country are looking at the possibility of introducing sector-specific prime lending rates (PLRs) to jack up credit offtake.

While State Bank of India, the country’s largest commercial bank, had been the first to approach the Reserve Bank of India with such an idea, it is now the turn of ICICI Bank to knock at the central bank’s door with a similar proposal.

RBI is now mulling over the proposals of the two banks and a decision is expected soon.

If the central bank accepts the proposal, SBI and ICICI Bank will be able to offer varying interest rates to different sectors. For example, PLR for the infrastructure sector will be different from that for the manufacturing or agricultural sector.

Senior RBI officials confirmed that ICICI Bank had submitted a proposal in this regard. However, the country’s largest private sector bank has not yet chalked out the details of this new interest rate structure.

ICICI Bank is the first private sector to come out with this sector-wise concept. While many banks have segmented their PLRs on the basis of tenor, ICICI Bank is attempting to segment the lending rates sector-wise.

The bank is currently undertaking a study on the costs and resource allocation issues involved in sector-wise PLRs.

While such lending rates are expected to ensure flow of funds to critical sectors, it will also enable the bank to minimise risk.

Officials of ICICI Bank said that they are planning to open 65 new branches in the current financial year. “If the central bank allows us to float sector-specific PLR then we will be able to do more through our expanded branch network.”

The bank has a network of 450 branches and extension counters as of March 31 this year. This financial year the private sector bank is focusing more on the development of branch network and not so much on ATMs.

Most bankers agree that PLR has lost its significance with banks lending mostly at sub-PLR. However, it is also true that the bulk of the sub-PLR loans are still mostly availed by top-notch companies with high credit ratings.

Smaller and medium-sized companies are still looked upon with a certain amount of circumspection by banks, which are already strapped with non-performing assets.

There has been a feeling among bankers that some newer strategies have to be devised to extend timely and adequate credit to other segments of the industry.

With no new mega project coming up in the country, the banks are looking at every possible concept which may lead to credit offtake.

Bankers said, “It is now common knowledge that credit offtake cannot be pushed merely by banks bringing down lending rates. There has to be a demand from the industry. However, banks must do everything in their power to boost commercial lending. And introduction of sector-specific PLR is a good concept.”

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