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Money > Business Headlines > Report April 30, 2002 | 1145 IST |
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Co-op banks given level field on loansBS Banking Bureau
With this new-found freedom, co-operative banks can now hope to vie with its peers to attract good borrowers by quoting competitive loan rates. The withdrawal of the stipulation of MLR for the co-operative banks will trigger a gradual realignment (downward revision) of the deposit rates. The spreads (net interest) margins could also come under pressure. The co-operative banks' average cost of deposit is around 9.5-10 per cent, while their average loan rate is around 13 per cent (for housing and retail loans) to 17 per cent (for loans to trade and industry). The RBI said co-operative banks will now be free to determine their lending rates taking into account their cost of funds, transaction costs, etc, with the approval of their managing committees. The central bank said these banks have to ensure that the interest rates charged by them are transparent and known to all customers. The central bank had only on March 2, 2002, reduced the MLR, which was the floor rate below which the co-operative banks cannot lend, from 13 per cent to 12 per cent for making their lending competitive. "The RBI has at long last acquiesced to the long-pending demand of the co-operative banks for doing way with the MLR. This is a welcome move. Now all the co-operative banks will be aligning their advances as also their deposit rates in tune with the general banking industry," Satish Marathe, chief executive officer, Janakalyan Sahakari Bank Ltd, said. The deposit rates can pared only gradually (in stages) while the rate of interest on advances could be brought down to the 13-15 per cent in the long-run to reflect the general interest rate trend in the banking sector, he averred. Co-operative banks can also bring down their letter of credit discount rate from the 12.5 -13 per cent level to 9.5-10 per cent, the discount rate offered by the public sector banks, while on the home loans front they (co-operative banks) can offer loans at around 12 per cent. "The paring of interest rate on assets could lead to a squeeze on the profitability of the co-operative banks. Banks have no go but to cut their deposit rates commensurably in order to protect spreads. "The benefit of zero taxation for banks should be passed on to customers," said H Krishna Karanth, general manager, New India Co-operative Bank. ALSO READ:
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