Friday, May 21, 2010

Banks in final process of switching to base rate system

The banks are in the final process of switching to the base rate system. The banking industry average for the base rate is between 8-9%. Major banks like State Bank of India, HDFC Bank and Kotak Mahindra Bank are working out to offer more aggressive rate of below 8%.

From July banks will replacing the benchmark prime lending rate system with base rate system under which the banks will be calculating their actual lending rate with reference to this base rate.

However most of the banks are working out an average base rate between 8-9%, it is believed that SBI, HDFC Bank and Kotak Mahindra Bank are planning to work out more aggressive competitive pricing.

According to sources SBI is expected to keep its average base rate in a range between 7-8.5%. HDFC Bank is planning at about 6.5% and Kotak Mahindra Bank is looking in the region of 6.5-7%. This is the range these banks are planning and focusing on at present.

On the other hand if we compare these rates to their peers, it is much higher. Axis Bank is planning to price its base rate between 8-9% whereas Punjab National Bank is looking at base rate above 8%. Dena Bank and Bank of India are looking at pricing range above 8%.

But everyone is looking at SBI as how the PSU major will price its base rate as rest of the banks will set their respective base rates accordingly.

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