Bank term negotiations

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Anil (Querist)
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23 August 2008 )Is the terms of NATIONALISED BANKS IN INDIA with respect to Interest Rate, Bills Discounting Charges, Concessional TT/DD charges, Import LC charges, etc negotiable OR are they governed by internal policy which has to be strictly complied?

2) How does one go about negotiating the above mentioned terms ? Does one has to get the quotation from various banks before getting into negotiations ? I request the experts to please share their personal experiance in this regard in detail.

Please answer both questions separately

KAMAL SETHI

KAMAL SETHI (Expert)
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23 August 2008 Well, the interest rate, bill discounting charges are based on credit rating of the customer. The BPLR (Benchmark Prime Lending Rate) is been fixed by RBI which every Bank has to abide by. If a customer has got excellent credit rating then interest rate can be at actual BPLR . If somewhat lesser than it could be BPLR+1% or 2% etc. depending upon your credit rating. Similary Bill Discounting is at concessional rate for a good credit rated customer it could be BPLR-3% or for someone having not not good credit rate it could be BPLR-2%or BPLR-1%. Credit rating is been done by Banks on various grounds based on payments towards loan, Limits utilisation, export payments etc.

2. Although , different back have different rate towards these kind of charges, if one can improve their credit ratings they can negotiate with bank.

Thanks

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Anil

Anil (Querist)
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23 August 2008 Thank you very much sir.

I have few more doubts regarding above matter. Kindly answer them too.

1)a)From which website I can get current BPLR rates?
b)How often BPLR changes?
c)Does the bank term too keep changing as and when BPLR changes or does it remain fixed once negotiation is done and agreed upon?

2)a)How credit rating done in case of new borrowers?
b)Do bank let us know the critaria based on which the borrowal rates are determined?

Please answer all the questions separately.

Thank you

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KAMAL SETHI

KAMAL SETHI (Expert)
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23 August 2008 Dear Mr. Anil,

i) Each bank website indicates its interest rate along with BPLR and charges as per their Credit terms. For example current BPLR is 14% . The link of Bank of India is http://www.bankofindia.com/bankplr.aspx
ii)It depends on RBI, Often it changes twice of thrice in a year only.
iii) Yes, Bank interest charges keeps on changing as per BPLR.

2a) Bank have their separate division for credit ratings and procedures. For new borrower various kind of hypothecations are also required.

b) I don't feel their system of credit rating is that much transparent. But if you have good credit report you can persue Bank to increase your Credit Rating and they can upgrade your rating thus saving your interest charges.

Thanks

CHEZHIYAN

CHEZHIYAN (Expert)
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23 August 2008 Thank you Mr. Kamal Sethi

its Really usefull

Anil

Anil (Querist)
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23 August 2008 Thank you. I am excited that I am getting to know so much from you.

My doubts does not seem to end. Here are few more questions. Hope you do not mind answering them too :

1)Does BPLAR fixed by RBI apply to BOTH Nationalised and Private Banks? just confirming.

2)Banks normally ask for future projections (CMA Data) before considering extending credit. While preparing the projections one needs to take into account the interest payable to bank. But interest rate is not known at the time of preparing the projections.How does one deal with this situation?

Thanks

KAMAL SETHI

KAMAL SETHI (Expert)
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23 August 2008 1) BPLR is applicable for all banks.
2) Towards Credit Monitoring Arrangement Data, your interest payable will be on a probable basis only and one can calculate the same taking in consideration current Interest rates.

Anil

Anil (Querist)
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23 August 2008 This question pertains to Foreign currency loan.

I have heard that some companies are borrowing foreign currency loan (Specially yen) as " they are cheaper".

1)Please let me know in what way /how these are cheaper compared to borrowing in INR? Does not BPLR and other criteria affect their lending rates?

2)What all other compliances (RBI guidnelines, FEMA rules) one needs to comply with in order to get foreign currency loan?

3)What are the risks involved in this kind of transaction?

4)Does this come under "External Commerical borrowing"?

5)Can one borrow foreign currency loan both for term loan and working capital needs?

6)In this arrangement is all lending done in foreign currency which are to be parked in a particular account and later exchanged for INR and then drawn by borrower?

7)Is repayment of this loan to be done in Foreign currency or INR?

Thanks

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S.Srinivasaraghavan

S.Srinivasaraghavan (Expert)
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18 October 2008 1)In a volatile situation like this the cost has to be watched on a day to day basis
2)RBI sanction.
3)Currency and interest rate risks
4)Yes, other than FCNRB
5)ECB only for capex
6.Yes
7.Yes.