State Bank of India (SBI) Chairman O P Bhatt said as a result of the base rate regime, some corporate clients who borrow for the short-term, have started migrating to competition that offer lower base rates.
Though at 7.5 per cent, SBI's base rate is one of the lowest among the domestic banks, foreign banks like RBS (6.5 per cent), HSBC (7 per cent), Citi and Standard Chartered (7.25 per cent each) beat SBI on the new lending regime.
It can be noted that while announcing the base rate, Bhatt had said that the new lending regime, which is 4.25 per cent lower than its then existing prime lending rate (PLR) of 11.75 per cent - will not impact its bottom line.
In the earlier PLR, short-term loans were priced "very finely" and now, Reserve Bank has asked banks not to lend below their announced base rates, which is resulting in the shift, Bhatt explained. The base rate system came into effect from July 1.
He said SBI has not increased its base rate to attract a larger number of customers to switch to the base rate regime from the old PLR system. "Only 20 per cent of our accounts are under base rate and 80 per cent under PLR, so it makes sense (to increase PLR) and also incentivise others to quickly to move on to base rate," he said.
SBI, had on August 16, hiked its lending rates by up to 0.50 per cent on its PLR loans, leaving those under its base rate unchanged.
SBI has witnessed a good growth in the cheaper CASA deposits in the second quarter and specifically in the savings account component, Bhatt said. The bank is targeting a credit growth of 20-22 per cent this fiscal, he said.
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