In a far-reaching reform measure, the Reserve Bank of India (RBI) asked banks to be more transparent in the way they charge interests rates from borrowers and proposed to introduce a new concept called “base rate” to serve as the minimum rate for all loans.
The base rate system is proposed to replace the existing benchmark prime lending rate system from April 1, 2010.
The RBI has sought an opinion from banks within a week.
While each bank may decide its own base rate, it will be calcu-lated on the cost of deposits, the banks’ administrative and operational costs and statutory costs.
Banks will have to provide information on the actual minimum and maximum lending rates charged to borrowers on a quarterly basis.
“Apart from transparency, banks should ensure interest rates charged to customers are non-discriminatory in nature,” RBI said in circular issued late on Wednesday evening.
Banks would not be allowed to lend below their base rates.
The new system would be applicable for all new loans and for those old loans that come up for renewal.
However, existing borrowers can switch to the new system on interest rates mutually agreed upon by the bank and the borrower.
At present, 70 per cent of all loans are given below the BPLR. Banks artificially keep the BPLR at high levels to cover for lower incomes from loans given to farmers, exporters and small industries where the government regulates the interest rates. RBI said it will separately announce norms for credit to exporters. Bankers refused to comment on the proposed norms.
“We would like to examine the circular before commenting on it,” J.M. Garg, CMD, Corporation Bank told HT.