The PSU banks are losing out to their private peers in the base rate game. They have seen a decline in the number of car loan borrowers.
The base rate fixed by PSU banks is higher than private banks and they have begun to feel the pinch.
The bill discounting activity is going over to the private banks. In this process, the bank purchases the bills receivable from the client and pays him the sum before the bill is really discounted but after subtracting a discount charge.
The discount rate is far below the base rate fixed by the PSU banks and base rate terms clearly state that banks are not allowed to lend below this rate. This has made the life of the banks quite tough.
A top executive of a PSU bank said, “We are absolutely sure about end-use of funds in this case, as it is backed by the letter of credit. As the risk is low, interest rates tend to be very low for these products”.
Except SBI and Corporation Bank, all other PSBs have fixed their base rate in the range of 8 – 8.25%.