Banks have started offering rupee loans at below prime lending rates (PLR) on a large scale as foreign currency loans are becoming inaccessible to borrowers owing to dearth of dollars deposits.
Public sector banks in particular are keen to push forth rupee loans at relatively lower rates by pegging it to benchmarks other than the prime lending rates.
State Bank of India is offering credit products whereby short-term working capital loans are being pegged to rates offered by commercial papers (CPs) or Mumbai inter-bank offer rates (Mibor).
While these demand loans are meant for six months, the period could be extended up to 18 months.
Similarly, other banks such as Bank of Baroda, Bank of India, Union Bank of India are offering demand loans pegged to Mibor and government securities of underlying maturity and even CPs on a case-to-case basis depending on the quantum of the loans, credit-worthiness of the borrower and purpose of the loan.
Bankers said pegging the loans to PLR is resulting in incompetitiveness. This is because with abundant rupee liquidity, borrowers have many other options to arrange cheaper credit through corporate bonds, commercial paper via private placement.
In such a scenario, it will be win-win situation for both if short term bank credit could be given a sub-PLR levels.
Market sources added that while a customer could avail of a cheaper floating rate home loans the same does not translate into low rates for those who had earlier opted for loans pegged to medium-term lending rates (MTLR), as the benchmark is not changed.
In home loans, LIC Home Finance and HDFC and a few others change their MTLR at regular intervals even if the interval in some case stretches from six months to a year.
While rupee liquidity is abundant, dollar loans are scarce and therefore the banks have asked the RBI for refinancing in dollars through its reserves and repos to be done in dollars.
The RBI is yet to respond even as the FCNR kitty, out of which the loans are usually lent, is facing a dry run for sometime now.