Base rate has been making banks miserable. Previously banks had to deal with losing short term borrowers to commercial papers (CP) but now they are losing customers to their competitors as well. This is because base rate has made home loans very expensive.
Banks with correspondingly higher base rate than their competitors have begus losing customers to other banks. Like, Vijaya Bank whose base rate is 8.25% can lose out to State Bank of India whose base rate is 7.5%.
If this condition continues, then biggest losers would be Karur Vysya Bank and Karnataka Bank having highest base rates at 8.5% and 8.75% respectively.
Suresh Ganapathy, head, financial research team, Macquarie Securities, said, “Those who have set their base rates higher are losing customers to banks that have a lower base rate,” said.
Albert Tauro, chairman and MD, Vijaya Bank said, “Lending is not happening significantly because of the higher base rate. Corporates are going to banks with lower base rate”.
Abizer Diwanji, executive director and head, financial services, KPMG said, “To set a higher base rate was a conscious decision on their part. At the end of the day, if the smaller banks were serving the larger corporates, they were doing it at a loss”.
A top official of Corporation Bank said, “We have gained customers from banks which had set a higher base rate than ours. But at the same time we have even lost customers to those banks which had set a base rate below ours”.
RR Nair, director and CEO, LIC Housing Finance said, “When our loans will come for renewal, we will take a call on whether the rates are acceptable”.