Banks go for legal check of loan documents prior to base rate regime
By Vaibhav Aggarwal
Jun 7, 2010
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With the era of base rate nearing implementation, banks have decided to seek legal check of loan documents signed by them so as to avoid any court cases in future.

The country's top bankers under the precedence of the largest lender of the country, State Bank of India discussed the issue in a meeting recently and thus came to this decision. A decision was made that banks would adopt independent legal opinion and if required, sign fresh documents so as to ensure that base rate gets implemented smoothly.

The meeting was attended by top executives from Bank of Baroda, Bank of India, Union Bank of India and Central Bank of India. Around three fourth of the total lending business in India is accounted to the public sector banks.

The base rate system would refrain banks from lending below the base rate which used to be the case with the erstwhile BPLR system of lending. The base rate would be implemented with the aim of bringing more transparency in the lending mechanism of banks.

Presently, banks lend to credit worthy clients especially corporates below the BPLR rate. Interest rates on loans given to companies are often reset every few months. These will have to be shifted according to base rate after its implementation.

Bankers decided that a borrower goes to court so as to allow him to avail loans below base rate. So in order to avoid any such hassles, banks have decided to seek legal opinion in this regard before deciding their future course of action.

"It requires a massive change to core banking solutions, which has not been done so far. Given that we are just around three weeks away from rolling out base rate, being ready on the IT front is going to be a big challenge," said a banker who attended the meeting.


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