Banks seek time till July to move to base rates

Banks have urged the Reserve Bank of India (RBI) to allow time till July to implement the proposed base-rate model, which was introduced by the apex bank early this month to bring in transparency in the lending.

Banks, who met the Indian Banks Association (IBA) here, felt that the extension of the April deadline is necessary given the huge task of gathering segment wise data, which is required to arrive at their respective base rates.

"They feel that more time is necessary to prepare for the migration. Each bank has to calculate their on base rate. The required data may not be readily available and the whole process is time taking," a top IBA official told PTI.

 

Early this month, the apex bank had issued draft guidelines to replace the existing benchmark prime lending rate (PLR) model with the base rate.

The RBI was apparently not happy with the practice of banks lending at much lower rates than the PLR to top-rated corporates, while common borrower still have to borrow at higher rates.

Announcing the guidelines, the RBI had said that the new model will come into effect from April 1 and had sought feedback from market participants on these draft norms by February 17.

The actual lending rate charged to borrowers would be the base rate plus borrower-specific charges including product-specific operating cost, credit-risk premium and tenure premium, the RBI said.

Once the new system is in place, banks cannot lend below the base rate.

Bankers have welcomed the new model, saying that this will enable clients to scientifically bargain for better pricing. They also said that any impact on credit growth and earnings due to the new model is unlikely as it provides a level playing field to everyone.

IBA is likely to formally submit its recommendations, reflecting the views of banks, to the central bank in the next few days.