CENTRAL BANK RAISES BASE RATE TO 8.5%

Central Bank of India has upped its base rate to 8.5 per cent from 8 per cent. Over the last few weeks, many public and private sector banks have revised their base rates by 10-50 basis points on account of upward pressure on deposit rates.

Banks determine their actual lending rates on loans and advances with reference to the base rate.

The criteria for determination of the base rate are: cost of deposits; adjustment for the negative carry in respect of cash reserve ratio and statutory liquidity ratio; unallocatable overhead cost, and profit margin.

The actual lending rates charged to borrowers are the base rate plus borrower-specific charges, which will include product-specific operating costs, credit risk premium, and tenor premium.

According to Mr R. K. Dubey, Executive Director, Central Bank of India, the base rate has been upped to offset the pressure on margins due to hike in deposit rates. The revised base rate is effective from October 20, 2010.

SOURCE: http://www.thehindubusinessline.com/2010/10/26/stories/2010102652380600.htm