RBI sets benchmark for banks' base rate

RBI maintained that the new system will replace the BPLR from July 1, but gave the banks six more months till December 31 to change the methodology of calculating the base rate for each bank. In its guidelines issued on Friday, RBI also said the base rate calculation will take into account factors like cost of deposits, and average return on networth among other factors. It is up to banks to take a call on the methodology of calculating the base rate. They can change the methodology within six months. “The base rate system will replace BPLR system with effect from July 1... In order to give banks some time to stabilise the system of base rate calculation, banks are permitted to change the benchmark and methodology any time during the initial six month period i.e. end-December 2010,” RBI said in its guidelines. Base rate shall include all those elements of lending rates that are common across all categories of borrowers.

Banks may choose any benchmark to arrive at the base rate for a specific tenor that may be disclosed transparently.

The base rate, which will replace the current system of benchmark prime lending rate, would improve transparency.

All categories of loans would be priced only with reference to the base rate.

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