Banks are unlikely to fix their base rate at a very low level even though the Reserve Bank of India has given them the freedom to decide the methodology to arrive at their respective base rates, experts today said. They said, the likely base rate in the banking industry is likely to be in the range of 7 per cent to 9 per cent.
To enhance transparency in lending, the Reserve Bank on Friday issued guidelines to replace the existing benchmark prime lending regime with base rate from July 1, below which no bank can lend. RBI also gave time till December for banks to change and fine tune the method of calculating the new rate.
Base rate of banks assumes significance as so far, banks used to lend much lower below their BPLR to their top rated corporate clients and to common customers at a much higher price, which invited the Reserve Bank's attention to the issue.
Given that banks are free to choose the methodology, which means they can benchmark the base rate even to a 14-days or 45-days deposit (means around 4 per cent interest), there is a possibility that some banks may fix their base rate at very level, according to banking sources.
To enhance transparency in lending, the Reserve Bank on Friday issued guidelines to replace the existing benchmark prime lending regime with base rate from July 1, below which no bank can lend. RBI also gave time till December for banks to change and fine tune the method of calculating the new rate.
Base rate of banks assumes significance as so far, banks used to lend much lower below their BPLR to their top rated corporate clients and to common customers at a much higher price, which invited the Reserve Bank's attention to the issue.
Given that banks are free to choose the methodology, which means they can benchmark the base rate even to a 14-days or 45-days deposit (means around 4 per cent interest), there is a possibility that some banks may fix their base rate at very level, according to banking sources.
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