DBOD.No.Dir.BC. 06 /13.07.01/2001-02 date August 09, 2001
Interest Rates on AdvancesThe Chief Executives of all Scheduled Commercial
Banks & Local Area Banks (Excluding RRBs)
Dear Sir,
As you are aware, the Reserve Bank of India has, from time to time, issued a number of circulars containing instructions to banks on matters relating to interest rate on advances. In order to enable the banks to have all the existing instructions on the subject at one place, the Master Circular has been prepared.
2. It may be noted that all the instructions contained in circulars listed in the Appendix have been consolidated.
Yours faithfully
(K. Seetharamu)
Chief General Manager
Master Circular on Interest Rates on Advances1. General
1.1 The banks should charge interest on loans/advances/cash credits/overdrafts or any other financial accommodation granted/provided/renewed by them or discount usance bills in accordance with the directives on interest rates on advances issued by Reserve Bank of India from time to time.
1.2 The interest at the specified rates shall be charged with quarterly or longer rests and shall be rounded off to the nearest rupee.
1.3 Banks should club the term loans and working capital advances together for the purpose of determining the size of the loan and the applicable rate of interest.
1.4 The schedule of rates of interest as per current directive in force with effect from April 19, 2001 is at Annexure-I.
2. Prime Lending Rate (PLR)2.1 At present, loans upto Rs. 2 lakh carry the prescription of not exceeding the Prime Lending Rate (PLR) and on the loans above Rs. 2 lakh, banks are free to determine rate of interest subject to PLR and spread guidelines. Keeping in view the international practice and to provide further operational flexibility to commercial banks in deciding their lending rates, it has been decided to relax the requirement of PLR being the floor rate for loans above Rs. 2 lakh. Banks may now offer loans at below PLR rates to exporters or other creditworthy borrowers including public enterprises on the lines of a transparent and objective policy approved by the respective Boards. Banks will continue to declare the maximum spread of interest rates over PLR. However, given the prevailing credit market in India and the need to continue with concessionality for small borrowers, the practice of treating PLR as the ceiling for loans upto Rs. 2 lakh will continue.
(The above guidelines will not be applicable to RRBs/LABs)
Separate PLRs may be fixed for short term credit and Prime Term Lending Rate (PTLR) for term loans of 3 years and above. The PLR/PTLR fixed should be declared and should also indicate the maximum spread over the PLR for all advances other than consumer credit. The banks could also prescribe separate PLRs for loan component and cash credit component and also prescribe separate spreads for both. The PLR/PTLR declared should be exclusive of interest tax for the sake of transparency.
2.2 The interest rate on credit limits of Rs. 2 lakh and below, other than consumer credit, shall not exceed the Prime Lending Rate which is available to the best borrowers of the concerned bank.
2.3 PLR will be made uniformly applicable at all branches of a bank.
3. Freedom to fix Lending RatesBanks enjoy freedom to stipulate lending rates without reference to their own Prime Lending Rates in respect of the following categories:
(i) Loans covered by refinance schemes of term lending institutions;
(ii) Interest rates on bank lending to intermediary agencies including housing finance intermediary agencies (cf. list at 'Annexure II');
(iii) Bill discounting by banks;
(iv) Advances/overdrafts against domestic/NRE/FCNR(B) deposits with the bank, provided that the deposit/s stands/stand either in the name(s) of the borrower himself/borrowers themselves, or in the names of the borrower jointly with another person;
(v) To a co-operative bank or to any other banking institution;
(vi) To its own employees.
4. Tenor Linked PLRs Banks have been given freedom to operate different PLRs for different maturities, provided the transparency and uniformity of treatment is maintained. Banks should not declare stand-alone PLR in addition to tenor linked PLRs. The banks, which have moved over to declaration of tenor-linked PLRs should invariably indicate the specific tenor for which the declared PLR is applicable.
5. Fixed Interest Rate for LoansBanks have freedom to offer all categories of loans on fixed or floating rates, subject to conformity to Asset-Liability Management (ALM) guidelines. However, the banks should ensure that the PLR stipulations as applicable are complied with. The nature of alignment with PLR i.e. whether it is at the time of sanction or disbursement of the loan, should be made explicit at the time of sanction of the loan. For small loans up to Rs. 2 lakh, the stipulation of 'not exceeding PLR' (for relevant maturity) should be made applicable.
6. Levying of penal rates of interestSince the Boards of the banks have been empowered to decide the Prime Lending Rate (PLR) as also the spread over PLR, it has been decided with effect from 10 October 2000, that banks may formulate transparent policy for charging penal interest with the approval of their Board of Directors. Penal interest may be levied for reasons such as default in repayment, non-submission of financial statements, etc. However, the policy on penal interest should be governed by well accepted principles of transparency, fairness, incentive to service the debt and due regard to genuine difficulties of customers.
(The above guidelines will be applicable to RRBs/LABs also)
7. Enabling clause7.1 The banks are required to invariably incorporate following proviso in the loan agreements in the case of all advances, including term loans, enabling banks to charge the applicable interest rate in conformity with the directives issued by RBI from time to time.
"Provided that the interest payable by the borrower shall be subject to the changes in interest rates made by the Reserve Bank from time to time."
7.2 Since banks are bound by the Reserve Bank's directive on interest rates on loans and advances which are issued under Sections 21 and 35A of the Banking Regulation Act, 1949, banks are obliged to give effect to any revision of interest rates whether upwards or downwards, on all the existing advances from the date the directive/revised interest rate (change in PLR and spread) come into force, unless the directives specifically provide otherwise.
7.3 Paragraphs 7.1 and 7.2 will not be applicable in case of Fixed Rate Loans.
8. Withdrawals against uncleared effectsWhere withdrawals are allowed against cheques sent for clearing, i.e. uncleared effects (e.g. uncleared local or outstation cheques) which are in the nature of unsecured advances, the banks should charge interest on such drawals as per the directive on interest rate on advances.
It may be noted that this instruction will not apply to the facility afforded to depositors for immediate credits in respect of cheques sent for collection as a measure of customer service.
9. Loans under consortium arrangement.The banks need not charge a uniform rate of interest even under a consortium arrangement. Each member bank should charge rate of interest on the portion of the credit limits extended by it to the borrower subject to its PLR.
Annexure - I
Interest Rate Structure excluding Interest Taxfor rupee advances of commercial bankseffective from April 19. 2001| Size of limit | All advances including Term loans Rate of interest (Per cent per annum) (effective 19 April, 2001)
|
| 1.(a) Upto and inclusive of Rs.2 lakh | Not exceeding Prime Lending Rate (PLR)
|
| (b) Over Rs.2 lakh | Free#
|
| 2. (i) Loans for purchase of consumer durables | Free@
|
| (ii) Loans to individuals against shares and debentures/bonds | Free@
|
| (iii) Other non-priority sector personal loans | Free@
|
3. Lending rate for commodities coming within the purview of Selective Credit Control (SCC)
|
| Loans/Advances/Cash Credit/Overdrafts against commodities subject to SCC | Free
|
| 4. Export Credit | Revised w.e.f.
May 5,2001 ($)
|
(1) Pre-shipment Credit
|
| (a)(i) Upto 180 days | Not exceeding PLR minus
1.5 percentage points
|
| (ii) Beyond 180 days and upto 270 days | Not exceeding PLR plus
1.5 percentage points
|
| (b) Against incentives receivable from Government covered by ECGC Guarantee (upto 90 days) | Not exceeding PLR minus
1.5 percentage points
|
| | Rate of interest
(Per cent per annum)
(effective 19 April, 2001)
|
(2) Post-shipment Credit
|
| (a) On demand bills for transit period (as specified by FEDAI) | Not exceeding PLR minus
1.5 percentage points
|
(b) Usance Bills
( for total period comprising usance period of export bills, transit period as specified by FEDAI and grace period wherever applicable )
|
| (i) Upto 90 days | Not exceeding PLR minus 1.5 percentage points
|
| (ii) Beyond 90 days and upto 6 months from date of shipment | Not exceeding PLR plus 1.5 percentage points
|
| (iii) Against incentives receivable from overnment covered by ECGC Guarantee (upto 90 days) | Not exceeding PLR minus 1.5 percentage points
|
| (iv) Against undrawn balances (upto 90 days ) | Not exceeding PLR minus 1.5 percentage points
|
| (v) Against retention money (for supplies portion only) payable within one year from the date of shipment (upto 90 days ) | Not exceeding PLR minus 1.5 percentage points
|
(3) Deferred Credit
|
| Deferred credit for the period beyond 180 Days | Free
|
(4) Export Credit not otherwise specified
|
| (a) Pre-shipment credit | Free
|
| (b) Post-shipment credit | Free
|
| 5. DRI Advances | 4.0
|
| 6(a) Advances/overdrafts against domestic/ RE/FCNR(B) deposits with the bank, provided that the deposit/s stands/ stand either in the name(s) of the borrower himself/borrowers themselves, or in the names of the borrower jointly with another person | Free to charge interest rates with- out reference to PLR
|
| | Rate of interest(Per cent per annum) (effective 19 April, 2001)
|
| 6 (b) Finance granted to intermediary agencies(excluding those of housing) for onlending to ultimate beneficiaries and agencies providing input support | Free to charge interest rates with- out reference to PLR
|
| (c) Finance granted to housing finance intermediary agencies for onlending to ultimate beneficiaries | Free to charge interest rates with- out reference to PLR
|
| 7. Loans covered by participation in refinancing schemes of term lending institutions | Free to charge interest rates as per stipulations of the refinancing agencies without reference to PLR
|
| 8.Discounting of Bills | Free to charge interest rates with- out reference to PLR
|
Note:
1. The instructions/directives do not apply to loans or advances or other financial accommodation made or provided or renewed by the commercial banks
i. against domestic/NRE/FCNR(B) deposit/s with the bank provided that the deposit/s stands/stand either in the name/s of the borrower himself/borrowers themselves or in the names of the borrower jointly with another person,
ii. to a co-operative bank or to any other banking institution, and
iii. to its own employees.
2. Free@ : The banks are free to determine the rates of interest without reference to PLR. However, it is not the intention to allow any concessionality in case of such loans and therefore banks should not charge rates below PLR, regardless of the size of the loan amount.
3.Free : The banks are free to determine rates of interest subject to PLR and spread guidelines.
4. Free#: The banks may offer loans above Rs. 2 lakh at below PLR rates to exporters or other creditworthy borrowers including public enterprises based on a transparent and objective policy approved by their Boards.
5. Intermediary agencies are indicated in Annexure II.
6. ($): Since these are ceiling rates, banks would be free to charge any rate below the ceiling rates.
Annexure II
An Illustrative list of Intermediary Agencies1. State sponsored organisations for on-lending to weaker sections. Weaker sections include -
i. Small and marginal farmers with landholdings of 5 acres and less, landless labourers, tenant farmers and share-croppers.
ii. Artisans, village and cottage industries where individual credit requirements do not exceed Rs. 25,000/-.
iii. Small and marginal farmers, sharecroppers, agricultural and non-agricultural labourers, rural artisans and families living below the poverty lines are the beneficiaries. The family income should not exceed Rs. 11,000/- per annum.
iv. Scheduled Castes and Scheduled Tribes.
v. Beneficiaries are persons whose family income from all sources does not exceed Rs. 7,200/- per annum in urban or semi-urban areas or Rs. 6,400/- per annum in rural areas. They should not own any land or the size of their holdings does not exceed one acre in the case of irrigated land and 2.5 acres in the case of unirrigated land (land holdings criteria do not apply to SC/ST).
vi. Beneficiaries under scheme of Liberation and Rehabilitation of Scavengers (SLRs).
vii. Advances granted to Self-Help Groups (SHGs) for reaching the rural poor.
2. Distributors of agricultural inputs/implements.
3. State Financial Corporations (SFCs)/State Industrial Development Corporations (SIDCs) to the extent they provide credit to weaker sections.
4. National Small Industries Corporation (NSIC).
5. Khadi and Village Industries Commission (KVIC).
6. Agencies involved in assisting the decentralised sector.
7. State sponsored organisations for on-lending to the weaker sections.
8. Housing and Urban Development Corporation Ltd. (HUDCO).
9. Housing Finance Companies approved by National Housing Bank (NHB) for refinance.
10. State sponsored organisations for SCs/STs (for purchase and supply of inputs to and/or marketing of output of the beneficiaries of these organisations).
11. Micro Finance Institutions/Non-Government Organisations (NGOs) on-lending to SHGs.
AppendixList of circulars/directives consolidated in this Master Circular which may be referred to for rationale and logic of the instructions
| | Reference Number, etc. | Date |
|---|
| 1 | DBOD No. Dir.BC. 117/13.07.01/2000-01 | 04.05.2001 |
| 2 | IECD No. 101/13.07.01/99-2000 | 19.04.2001 |
| 3 | DBOD No. Dir.BC 106/13.03.00/2000-01 | 19.04.2001 |
| 4 | DBOD No. Dir.BC 107/13.03.00/2000-01 | 19.04.2001 |
| 5 | IECD No. 9/04.02.01/2000-01 | 05.01.2001 |
| 6 | DBOD No. BP.BC 31/21.04.048/00-01 | 10.10.2000 |
| 7 | DBOD.No.BC.178/13:07:01/2000 | 25.05.2000 |
| 8 | DBOD.No.Dir.BC. 168/13:03:00-2000 | 27.04.2000 |
| 9 | DBOD.No.Dir.BC.114/13.03.00/99 | 29.10.1999 |
| 10 | DBOD.No.Dir.BC.106/13.03.00/99 | 29.10.1999 |
| 11 | DBOD.No.Dir.BC.100/13.07.01/99 | 11.10.1999 |
| 12 | DBOD.No.BP.BC.35/21.01.002/99 | 24.04.1999 |
| 13 | DBOD.No. Dir.BC.33/13.03.00/98 | 29.04.1998 |
| 14 | DBOD.No.Dir.BC.36/13.03.00/98 | 29.04.1998 |
| 15 | DBOD.No.Dir.BC.124/13.07.01/97-98 | 21.10.1997 |
| 16 | DBOD.No.Dir.BC.10/13.07.01/97 | 12.02.1997 |
| 17 | DBOD.No.Dir.BC.139/13.07.01/96 | 19.10.1996 |
| 18 | RPCD.No.PL.BC.120/04.09.22/95-96 | 02.04.1996 |
| 19 | DBOD.No.BC.99/13.07.01/95 | 12.09.1995 |
| 20 | DBOD.No.Dir.BC. 89/13:07:01/95 | 21.08.1995 |
| 21 | RPCD.No.PLNFS.BC.165/06.03.01/94-95 | 06.06.1995 |
| 22 | DBOD.No.Dir.BC.141/13.07.01-94 | 07.12.1994 |
| 23 | IECD.No.28/08.12.01/94-95 | 22.11.1994 |
| 24 | DBOD.No.Dir.BC.115/13.07.01/94 | 17.10.1994 |
| 25 | IECD.No.19/08.13.09/93-94 | 28.10.1993 |
| 26 | DBOD.No.Dir.BC.92/C.96-91 | 06.03.1991 |
| 27 | DBOD.No.Dir.BC.36/C.347-90 | 22.10.1990 |
| 28 | DBOD.No.Dir.BC.18 & 19/C.96-90 | 21.09.1990 |
| 29 | DBOD.No.Dir.BC.88/C.96-89 | 08.03.1989 |
| 30 | DBOD.No.Dir.BC.38/C.96-86 | 24.03 1986 |
| 31 | DBOD.No.Dir.BC. 90/C.347/85 | 02.08.1985 |
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