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Guidelines for RBI's base rate : All you wanted to know
The Reserve Bank of India has released guidelines on the base rate, which is likely to replace the existing BPLR system from April 1. Under the new draft rules, banks should calculate their base rate by including the cost of deposits, cost of maintaining the statutory liquidity ratio and cash reserve ratio, cost of running the bank, and profit margin. The base rate will now be the new reference rate for determining lending rates. In its draft guidelines, it has proposed that the actual lending rate charged to borrowers be the base rate plus borrower-specific charges, including product-specific operating cost, credit-risk premium, and tenure premium. At present, banks offer loans to big corporates at around 8-9%, while the average BPLR is 11-12%.
"It is expected that the deregulation of lending rates will increase the credit flow to small borrowers at a reasonable rate. Thus, direct bank finance will provide effective competition to other forms of high cost credit," it stated.
The Reserve Bank of India has released guidelines on the base rate, which is likely to replace the existing BPLR system from April 1. Under the new draft rules, banks should calculate their base rate by including the cost of deposits, cost of maintaining the statutory liquidity ratio and cash reserve ratio, cost of running the bank, and profit margin. The base rate will now be the new reference rate for determining lending rates. In its draft guidelines, it has proposed that the actual lending rate charged to borrowers be the base rate plus borrower-specific charges, including product-specific operating cost, credit-risk premium, and tenure premium. At present, banks offer loans to big corporates at around 8-9%, while the average BPLR is 11-12%.
"It is expected that the deregulation of lending rates will increase the credit flow to small borrowers at a reasonable rate. Thus, direct bank finance will provide effective competition to other forms of high cost credit," it stated.
