(a) whether the Union Government provide loan to companies with high turnover;
(b) if so, the details thereof alongwith details of loans provided company-wise during each of the last three years;
(c) whether such loans are provided at iow rates of interest; and
(d) if so, the details thereof alongwith reasons therefor?
The Minister of State in the Ministry of Finance (SHRI NAMO NARAIN MEENA)
(a) to (d): No, Sir. However, the banking industry does provide loans to companies
based on their commercial judgment and Board approved policies.
With effect from 18-10-1994, the Reserve Bank of India (RBI) had deregulated the
interest rates on advances above Rs.2 lakh and these interest rates were determined by
banks themselves with the approval of their Boards, subject to Benchmark Prime Lending
Rate (BPLR) and Spread guidelines. Individual banks therefore determined interest rates
to be charged to a particular borrower subject to BPLR and Spread guidelines. Interest
rate on Loans up to Rs.2 lakh carried the prescription of not exceeding the BPLR. However,
banks had the freedom to determine the rate of interest, without reference to BPLR and
regardless of size in respect of loans for purchase of consumer durables and other non-
priority sector personal loans including credit cards dues.
The BPLR system evolved in a manner that did not meet the objectives. Competition
in an environment of excess liquidity had forced the pricing of a significant proportion
of loans far out of alignment with BPLRs undermining its role as a reference rate. Around
78.0 per cent of the loans were extended by banks on sub-PLR. In other words, there was a
growing public perception of under-pricing of credit for corporates and over-pricing of
credit to agriculture as well as small and medium enterprises. The lack of transparency
in the BPLR system also hindered transmission of monetary policy signals. Taking into
consideration all these factors, the BPLR system has been replaced by new guidelines on
the Base Rate system, which have come into force with effect from 01-07-2010.
In terms of the new guidelines, banks will determine their actual lending rate on
loans and advances with reference to the Base Rate. All categories of loans will be priced
only with reference to the Base Rate, which will be announced by banks after seeking approval
from their respective Boards. Since the Base Rate will be the minimum rate for all loans,
banks will not be permitted to resort to any lending below the Base Rate. Accordingly, the
current stipulation of BPLR as the ceiling rate for loans up to Rs. 2 lakh has been withdrawn.