Banks should get out of ‘conservative banking’ mindset: Subbarao
By Joseph Samson
Nov 30, 2009
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The RBI governor, D Subbarao said that the bankers' conservative mindset has led to non-transparency in lending rates.

The problem is the wide difference between the central bank's policy rates and the actual rates at which banks lend.

The benchmark prime lending rate (BPLR) is the rate at which banks lend and this rate is much higher than RBI's repo rate, the rate at which RBI lends to bank.

Banks lend a lot of capital to big businesses at a rate much lower than twice the benchmark prime lending rate. However, the lending rate in case of small businesses is much higher than the BPLR. Thus there is no transparency in the lending system and the BPLR is rendered meaningless.

An RBI committee has already proposed the replacement of the BPLR with something called the base rate.

The base rate would be directly linked to deposit rates offered by each bank and hence restrict banks from charging interest rates as per their discretion.


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