RBI marks up interest on floating rate bonds 2013 to 9.77 per cent
15 Sep 2008
Mumbai: The Reserve Bank of India (RBI) has marked up the rate of interest on its Floating Rate Bonds, 2013 (FRB, 2013) to 9.77 per cent per annum for the 12-month period from 10 September 2008 to 9 September 2009, a move that could raise lending rate of banks.
RBI's review of the benchmarking system for pricing floating rate loans could impact 70 to 75 per cent of the loan portfolio of most banks.
The variable base rate for payment of interest shall be the average rate (rounded off up to two decimal places) of the implicit yields at cut-off prices emerging in the three auctions of Government of India 364-day treasury bills immediately preceding the relative annual coupon reset date.
The rate of interest on the FRB, 2013 has been marked up on the basis of the auction held on 9 September 2004.
The variable base rate based on the average rate of the implicit yields at cut-off prices of the said last three auctions of Government of India 364-day treasury bills worked out to be 9.32 per cent. The mark-up decided in the auction held on 9 September 2004 was (+) 0.45 per cent. The coupon rate has been fixed accordingly.
The move comes amidst an increase in the delinquency rate in the aftermath of RBIs moves to keep lending rates of commercial banks high. Many banks are also shifting to floating rate loans for products such as auto loans that were earlier offered at a fixed rate.
It has been observed that most banks do not fix floating interest rates in a transparent manner.
Banks generally float long-term loans rates while short-term loans usually carry fixed rates.
While most banks use their respective prime lending rates (PLR) as the base for floating rate loans, this too is not risk-free as it is calculated after incorporating costs and risks specific to each bank. RBI feels a floating rate benchmark could be risk-free.
RBI has directed banks to use risk-free market rates like call rates or the Mumbai inter-bank offered rates (Mibor) or yields on government securities as the benchmark to peg other costs and arrive at the interest rate for floating rate loans.
Banks generally want the RBI to benchmark interest rates on the basis of call rates or the yields on government securities since they are calculated on the basis of transactions on the negotiated dealing system (NDS) - RBI's screen-based anonymous dealing system for all government securities.
RBI, meanwhile, sold 8.24 per cent Government of India stock 2018 for a total of Rs5,000 crore and 2032 stock for a notified amount of Rs3,000 crore.
It received 225 bids for a total of Rs10,551 crore for the 2018 stock and 166 bids for a total of 8,530.42crore. The cut off price was Rs99.58 crore (an yield to maturity of 8.302 per cent) for the 2018 paper and Rs92.50 crore (an yield to maturity of 8.699 per cent) for the 2032 stock, were received at a cut off price of Rs99.58, at an yield-to-maturity rate of 8.699 per cent.
