Monday, November 29, 1999

RBI clarification likely on concessional loans

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Mumbai, June 17 (PTI) The Reserve Bank may come out with a clarification whether concessional loans, including farm credit, can be given below the base rate, which is slated to replace the existing benchmark prime lending rate from July 1. The Indian Banks Association today met Reserve Bank deputy governor Usha Thorat to voice their concerns on the lack of clarity on concessional loan once base rate is implemented. The bankers raised issues such as agriculture loan where borrowers get interest rate subvention, with Thorat, sources said. The base rate is the lowest rate that the bank can charge from a customer and is intended to bring about more transparency in the lending operations of banks. "We have raised a host of issues related to agriculture and export loans before the Reserve Bank," a senior IBA official who attended the meeting told PTI. The RBI is understood to have agreed to issue circular giving more clarity on concessional loan, sources said. The government gives 2 per cent loan subsidy on farm loans, something lenders fear may soon come to an end after the base rate is implemented. Banks cannot charge more than 7 per cent on agriculture loan. Similarly, in case of rupee loans to exporters, the government does not allow PSU banks from charging more than 2 percentage points below its the BPLR. Many banks have indicated that the base rate is likely to be between 8 and 8.5 per cent. The country''s largest lender SBI said it is fully prepared for the new interest rate regime. "We have already indicated that the base rate would be between 7.5 per cent and 8.5 per cent," SBI chairman OP Bhatt had said last week. Punjab National Bank had also indicated that the base rate to be in between 8 and 8.5 per cent.

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