With the arrival of base rate, banks are worried that it may erode their profits. Banks say that once the base rate is implemented, they would pay more to the depositors but won’t earn a parallel income. Also they fear that home loans would be affected as old customers were given loans based on PLR.
T.Y. Prabhu, Oriental Bank CMD said, “There could be some squeeze on profits for banks for the current fiscal but there is no cause for concern”.
The chief aim behind RBI introducing base rate was to introduce a more apparent system of loan pricing. Base rate is set to come into effect from July 1.
While each bank has received the freedom to choose its own parameters for calculating its base rate, RBI has stated that once a parameter is selected, it cannot be altered.
Indian Bank’s CMD T.M. Bhasin, said, “Though there could be some pressure but it would not affect the bottomline in any manner as we are already looking at increasing other incomes through several channels, such as bancassurance, we will also focus on fee-based income.”