No borrower specific base rates: RBI
By Neelima Shankar
May 7, 2010
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The appeal by some banks for having the liberty to set borrower specific base rates has been rejected by the RBI. The banks are not even allowed to charge negative premium during the calculation of effective base rate.

After the RBI's final directive regarding base rate, some banks had asked for relaxation from the RBI.

A negative premium would have meant that the banks would be lending below the base rate. The RBI has rejected this plea saying that no lending below the base rate would be allowed. The RBI keeps its stance saying that Base rate has been implemented so as to bring transparency in the system.

Some banks who had anticipated their base rate to lie somewhere between 8-9% would not be able to lend for short term to the corporate sector. The major reason behind this is the fact that interest rates on short term loans are dependant on overnight rates which lie below 8%.

The annual monetary policy emphasized on base rate taking over BPLR so as to make the lending mechanism a more transparent affair.

RBI has allowed banks to select their own parameters for calculating base rate but has said that a parameter once chosen cannot be replaced.


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