RBI has directed banks to replace the BPLR with base rate. BPLR (Benchmark Prime Lending Rate) is the interest rate that commercial banks charge their most credit-worthy customers. According to the Reserve Bank of India banks are free to fix the Benchmark Prime Lending Rate (BPLR) with the approval of their respective Boards. Now this liberty would be withdrawn w.e.f. April 2010.
Base rate is a minimum rate for all commercial loans. Banks are not permitted to lend below this rate
The banks should use the following criteria for determining the base rate.
- cost of deposits.
- Negative carry on cash reserve ratio/ statutory liquidity ratio;
- un-allocable overhead costs for banks.
Banks would also add a profit margin to arrive at the base rate.
Impact of this:
- Loans rates to credit worthy customers which are below BPLR will now increase upto base rate.
- SME sectors will get credit at reasonable rate.
- Loans against fixed deposits will be costlier.
- Home loan rates may increase.
C.R. Venkata Ramani