RBI to let banks review base rate methodology more often

REUTERS - The Reserve Bank of India (RBI) on Monday said it will allow banks to review their base rate methodology three years after it has been finalised, down from the current five years, in a move aimed at giving lenders greater flexibility in their operations.

The RBI said these changes will come into effect in a month.

To make lending rates more transparent, the RBI said banks should have a board-approved policy outlining the components of the spread that its charges to customers.

"It should be ensured that any price differentiation is consistent with bank's credit pricing policy," it said in a notification.

The central bank also said when setting their base rate, banks will be free to calculate the cost of funds either on the basis of average cost of funds or any other methodology that is reasonable and transparent.

(Reporting by Nivedita Bhattacharjee in Mumbai; Editing by Hugh Lawson)