Reserve Bank Deputy Governor K J Udeshi on Tuesday said average lending rates in the country will come down after banks adopt the new benchmark prime lending rate from January 1, 2004.

Senior bankers like PNB chief S S Kohli and Corporation Bank chairman K Cherian Verghese, agreed with RBI's view and said lending rates may come down by 0.25 per cent in the coming months also on account of the excess liquidity in the banking system.

"Benchmarking is definitely necessary because we don't want banks to give sub-PLR rates to borrowers in some sectors and neglect other sectors," Udeshi said on the sidelines of a conference on banking organised by International Chamber of Commerce New Delhi.

"As much as 50-60 per cent of sectors are not getting finance at Sub-PLR. That is definitely not what RBI wants," she said.

When asked whether the average lending rates of banks will come down after introduction of benchmark PLR, Udeshi said: "Yes, it will come down."

The new benchmark PLR would be pegged by each bank on the basis of various parameters like cost of funds, operational cost, NPA and profit margin.

"Benchmark PLR will be introduced from January 1, and it will ensure that most of the lending of banks will be at that rate," she added.

The RBI Deputy Governor said benchmark PLR would ensure that there is transparency and borrowers would be able to know the basis on which the interest rate is charged to them.

Udeshi said the benchmark PLR would not be applicable to loans taken by individuals, including housing and retail loans as envisaged by the Indian Bank Association.

"They (the IBA) have excluded certain category of loans. Any lending to individuals will be excluded from the benchmark PLR," she said.

It would be up to bankers to decide on the rates on retail loans, she said, adding: "It could be below the benchmark PLR."

Banks would be forced to peg market related rates for retail loans as it would be difficult for them to compete and survive otherwise, she said.

Punjab National Bank Chairman S S Kohli said: "I feel interest rates would be stable. It might go down by 0.25 per cent in certain sectors."

Top corporate borrowers were already borrowing at less than PLR and tapping the debt market to raise funds. So credit growth has not been much but the average yield on investment of banks have come down, he said.

Corporation Bank Chairman Cherian Verghese said: "Lending rates should stabilise with a possible tilt downwards by about 0.25 per cent. There will be no drastic reduction in rates."

On retail segment, he said: "We don't expect rate cuts in the consumer loan segment."

The bankers also ruled out further reduction in the term deposit rates as the small savings rates were still higher.

RBI floated the notion of benchmark PLR in its April Credit Policy and asked IBA to formulate it. IBA has fixed January 1 as the deadline for banks to adopt the new way of fixing PLR.