With banks increasing their prime lending rates (PLR), borrowers now have to make a choice whether to accept the rise or switch to the new counterpart that is base rate system of lending.

Base rate (BR) has coem into effect from July 1 and from then onwards all new loans and the ones coming for renewal would be priced as per the base rate. But long term loans were posing a problem as RBI directive suggested that it was totally the borrower's call whether to continue with PLR or switch to BR.

The move by banks to raise PLR has been to push borrowers towards BR. Bankers say that those borrowers who feel that base rate is more stable as well as favorable should switch to it.

"Previous loans that are linked to PLR will get costlier. Hence, borrowers who feel that the hike in the rate will adversely impact them can shift to the base rate system," KR Kamath, CMD of Punjab National Bank, said.

CS Jain, head, personal banking, IDBI Bank said, "Customers would now have to decide whether to exercise the option provided by the RBI. This system is theoretically less prone to fluctuations when compared to the PLR system where banks keep adjusting rates frequently."

Kamath said, "Our base rate would be reviewed after every quarter. One of the inputs towards this will be our cost of deposits. We have also raised our deposit rates by matching amount to give our customers a fair deal."

"I feel that borrowers would be better off under a more transparent base rate system. The previous system was anything but transparent where the benefits were often not passed on to the borrowers," Ashish Jindal, regional director (north), Knight Frank India.