Ahead of the monetary review, industry chamber Assocham asked the RBI to make changes in the base rate mechanism to provide clarity on concessional loans given to industries for their restructuring.
In a statement, Assocham President Swati A Piramal also said that the base rate mechanism should cover non-banking finance companies (NBFCs), cooperative banks and regional rural banks (RRBs).
The base rate system, a new system for benchmarking lending rates, came into effect from July 1. The new mechanism, which replaced the prime lending rate system, sets the minimum lending rate for banks.
Most banks have set it at 7-8.5 per cent.
Piramal said that since base rate is a floor rate, it was unclear how loans given at concessional rates to industries that are being restructured or rehabilitated would be treated.
The Assocham president also said that the present arrangement by banks for funding against letters of credit (LCs) and bill discounts would be severely affected by the base rate system as loans are given at substantially-reduced rate due to guaranteed payments.
The purpose of the base rate was to expedite the transmission of RBI's policy decisions on interest rates. Banks giving loans to highly-rated corporates at rates below prime lending levels used to result in the transmission getting affected.
Assocham said that freedom for banks to adjust base rates quarterly would also come in the way of smooth transmission of RBI decisions.
Piramal also said that the base rate mechanism leaves out government borrowings, which plays a crucial role in determining interest rates.
The chamber also asked RBI to include lending by NBFCs, RRBs and co-operative banks in the base rate mechanism.
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