All banks are busy calculating their base rates these days. Banks are likely to follow competitive pricing in this regard. While most of the banks are eyeing the rates fixed by the largest lender of the country, State Bank of India, HDFC Bank might quote a rate much lower than SBI's.
It is expected that the base rate of SBI would be somewhere around 7.5-8.5%.
RBI has directed that all banks need to calculate base rate on the basis of cost of deposits. These cost of deposits refer to cost of six month deposits. HDFC Bank, however says that the current market scenario is such that a large number of corporates are borrowing three month deposits. The bank argues that for a three month deposit, all costs do not need to be included.
It also says that the basic idea behind implementation of base rate is not to surge rates. It infact has been brought into existence in order to bring transparency in the lending mechanism of banks.
The RBI has said that banks can experiment with their base rates for six months and they should be coming up with a definitive strategy on the issue by 31st December 2010.