The Reserve Bank of India is likely to announce a sunset clause with a deadline of June 30, 2011, for all loans in the erstwhile benchmark prime lending rate (BPLR) system to help banks migrate to the new base rate model.
Banks had approached RBI for such a clause for all BPLR-linked loans, which would have otherwise forced them to administer two types of benchmarks — base rate and BPLR — for many years if a borrower refused to switch to the base rate.
Banks moved to the base rate regime from July 1, following the recommendations of an RBI-appointed panel to replace the erstwhile BPLR with the new model to improve transparency in lending.
Earlier, banks used to cross-subsidise top-rated corporate loans with those given to the common man.
With the implementation of the system, all new loans will be linked to base rates. Existing loans will be shifted to the base rate model upon reaching maturity, or if the customer opts for the change.
However, bankers are worried that long-maturity loans, such as the ones for infrastructure, will continue in the BPLR regime if the customer refuses to switch.
Most state-owned banks, including top lenders SBI and ICICI Bank, have fixed their base rates between 7.5% and 8% while some private and foreign sector banks have kept it at even lower levels to woo potential corporate clients.
Bankers met RBI deputy governor Subir Gokarn on Monday, ahead of the quarterly review later this month, to discuss issues like credit growth, liquidity situation and base rate implementation.
RBI is widely expected to hike its overnight lending and borrowing rates (repo, reverse repo) by at least 0.25% during its policy review to check double-digit inflation.
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