Corporate loan rates have shot up by as much as 2 per cent in the last one month. The lending rates have increased to around PLR (prime lending rate) minus 2 per cent from PLR minus 4 per cent till recently, banking sources said.

The PLR of banks is currently in a range of 10.25-10.75 per cent, which translates into lending rates of 8.25 per cent to 8.75 per cent.

The current interest rate level is in sharp contrast to the rate (of around 6 per cent) at which the companies could bargain during the days of high liquidity. The companies could pitch one bank against the other, taking advantage of high liquidity and competition among bankers to take on board blue chip corporates, the sources said.

During the last couple of years, the companies even managed to borrow short-term money for project funding and that too at “ridiculously” low rates and the banks unwittingly played into the hands of the firms, particularly the blue-chip ones, by undercutting each other.

Some of the banks had also fallen into the trap of suicidal pricing of loans, having lent money at rates less than the deposit rates of one year-tenure.

Banks have also exercised the call option on most of the Rs 40,000 crore of Mibor (Mumbai inter-bank offered rate) linked daily put and call loans, thus ending the corporate world’s party with low interest rates.

( www.business-standard.com)