The RBI mandated new Base Rate lending system for all banks which facilitates a fixed minimum base rate system for loans instead of the old PLR system. The base rate will be the new reference rate for determining lending rates for banks, and will be implemented three months later than earlier planned.
"It will start from July 1. After the RBI met with heads of state-run banks, Usha Thorat, Deputy Governor of Reserve Bank of India" told reporters that banks wanted some time.
Banks in India tend to charge their biggest corporate borrowers less than published prime rates, which they would no longer be able to do on new loans from July 1. The RBI has expressed concern over banks offering short-term loans well below their prime rates to companies and mortgage borrowers as the banking system is flush with liquidity. The actual lending rate charged to borrowers would be the base rate plus borrower-specific charges including operating costs, according to draft guidelines on the RBI website.
After the implementation of the new loan pricing system, existing borrowers would continue to pay at existing rates, while the base rate would apply to new customers. The new base rate system is intended to allow cuts in interest rates by banks to be passed on to all customers rather than a few large corporate clients.
The move ultimately will have a good impact over loan markets & retail customers as now they can also enjoy minimum rates instead of paying higher than what banks offer to large corporates.
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