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Banks to Extend Loans at Base Rate from April 2010 : Gokarn

SME WORLD Bureau
Mar 2010

Dy. Governor, Reserve Bank of India, Dr. Subir Gokarn clarified that the apex bank won't take any policy decision on interest rates until April 2010 and the existing interest rate regime will prevail.

Inaugurating a conference on capital markets – Growth with Governance organized by Assocham, Dr. Gokarn, however, added that banks would have to provide loans on a base rate from next fiscal onwards as current benchmark prime lending rate (BPLR) provides for no transparency.

The apex bank has already issued a draft circular to all stake holders for seeking their opinion on fixed rate so that consumers or borrowers gains the best, pointed out Dr. Gokarn.

Under the existing BPLR system, banks use their negotiating power for extension of borrowings to lenders and based on the bargaining between concerned banks and their borrowers, the rates for lendings are decided which means that for different consumers banks charge different interest rates.

Therefore, the apex bank has come out with a circular so that extension of loans become a reality on a base rate and no differential on lending rates is assured for different categories of customers, said Dr. Gokarn.

On the issue of strengthening capital market, Dr. Gokaran said it would be the priority of the bank to ensure growth and sustainability in the capital market for investors.

He suggested that climate change would become a major issue in coming days and companies that take all possible precautions for emission reduction would receive the highest attention from investing companies. Therefore, the corporate world should attach maximum significance for corporate social responsibility in fair proportion with corporate governance.

Speaking on the occasion, Secretary Ministry of Corporate Affairs, Mr. R. Bandyopadhyay said that under the new Companies Act, the government would define very explicitly the role of independent directors as also put a fixed ceiling for individuals to become independent directors only in few companies against the current practice in which no ceiling is prescribed for. This will ensure accountability for independent directors so that corporate mis-appropriations are put on hold.

The government would table the draft Company Bill which is currently subject to scrutiny to select group of MPs in monsoon session in which disclosure norms would be rolled out for corporates to follow them to ensure fair corporate governance, said Mr. Bandyopadhyay.

He, however, threatened that companies that fail to adhere to new disclosure norms would be subjected to legal course by the regulator and accordingly will have to be dealt with.

Speaking on the occasion, Assocham Capital Market Committee Chairperson, Ms. Naina Lal Kidwai said that India needs to reduce it's over-regulations for corporate world so that the capital market which determines the mood of Indian economy is strengthened on sustained basis.

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