Mumbai: While banks have to start lending as per a base rate from July, they have six months till December end to migrate completely to the new system. The Reserve Bank of India (RBI) said on Friday that for existing loans, the base rate would be applicable once they matured. For new loans, the base rate will be levied immediately. Also existing borrowers can shift to base rate, before their loans mature.
Banks, however, cannot charge customers any fee for such switchover. The banks should announce their base rates after seeking approval from their respective asset liability committee (ALCOs)/ Boards. M Narendra, executive director, Bank of India, said his bank has put technology in place and are ready to implement the base rate regime by July 1 as has been stipulated by the RBI.
All the existing customers with sanctioned limits will continue to be on old rates. However, all new customers will have to come under the base rate system. Some borrowers like SMEs will derive benefits from it.
Since the base rate will be the minimum rate for all loans, banks are not permitted to resort to any lending below the base rate. Accordingly, the current stipulation of bench mark prime lending rates (BPLR) as the ceiling rate for loans up to Rs 2 lakh stands withdrawn, said RBI.
On applicability of base rate, the central bank has said the new rate could also serve as the reference benchmark rate for floating rate loan products, apart from external market benchmark rates. The floating interest rate based on external benchmarks should, however, be equal to or above the base rate at the time of sanction or renewal.
RBI will separately announce the stipulation for export credit vis-à-vis base rate.
The central bank has further said banks are required to review the base rate at least once in a quarter with the approval of the board or the ALCOs as per the bank’s practice.
However, loans such as differential rate of interest (DRI) advances, loans to banks’ own employees and loans to banks’ depositors against their own deposits could be priced without reference to the base rate
The changes in the base rate will be applicable in respect of all existing loans linked to it in a transparent and non-discriminatory manner. Since transparency in the pricing of lending products has been a key objective, banks are required to display the information...
Source: financialexpress.com/
Banks, however, cannot charge customers any fee for such switchover. The banks should announce their base rates after seeking approval from their respective asset liability committee (ALCOs)/ Boards. M Narendra, executive director, Bank of India, said his bank has put technology in place and are ready to implement the base rate regime by July 1 as has been stipulated by the RBI.
All the existing customers with sanctioned limits will continue to be on old rates. However, all new customers will have to come under the base rate system. Some borrowers like SMEs will derive benefits from it.
Since the base rate will be the minimum rate for all loans, banks are not permitted to resort to any lending below the base rate. Accordingly, the current stipulation of bench mark prime lending rates (BPLR) as the ceiling rate for loans up to Rs 2 lakh stands withdrawn, said RBI.
On applicability of base rate, the central bank has said the new rate could also serve as the reference benchmark rate for floating rate loan products, apart from external market benchmark rates. The floating interest rate based on external benchmarks should, however, be equal to or above the base rate at the time of sanction or renewal.
RBI will separately announce the stipulation for export credit vis-à-vis base rate. The central bank has further said banks are required to review the base rate at least once in a quarter with the approval of the board or the ALCOs as per the bank’s practice.
However, loans such as differential rate of interest (DRI) advances, loans to banks’ own employees and loans to banks’ depositors against their own deposits could be priced without reference to the base rate
The changes in the base rate will be applicable in respect of all existing loans linked to it in a transparent and non-discriminatory manner. Since transparency in the pricing of lending products has been a key objective, banks are required to display the information...
Source: financialexpress.com/
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