RBI extends deadline to change base rate method

The Reserve Bank of India (RBI) today gave banks another six months till June 30 to adopt the new method for computing base rate -- below which lenders are not allowed to extend loans.

"Banks are permitted to change the benchmark and methodology used in the computation of base rate for a further period of six months, i.e. up to June 30, 2011," the RBI said in a notification.

Earlier, banks were given time till December 31 to adopt the new method for computing base rate.

Last April, the RBI had directed all the banks to switch to the base rate system with effect from July 1, from the then prevailing Benchmark Prime Lending Rates (BPLR) system.

The minimum lending rate, or base rate, is intended to bring about more transparency in banks' lending operations.

Under the base rate lending mechanism, borrowers are charged interest rates over the base rate depending on their credit profile. The system, however, does not apply to concessional loans for agriculture, export and other specified sectors.

As per RBI guidelines, the base rate calculation takes into account factors like cost of deposits and average return on networth.

Besides, banks are required to review the base rate at least once in a quarter with the approval of the board or the asset liability management committees.