Banks come together to reach consensus on base rate
By Neelima Shankar
May 27, 2010
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Banks are expected to meet soon in order to discuss the new loan pricing mechanism. With base rate coming into play from July 2010, all banks have been guessing each other's rates. So at the behest of State Bank of India all banks have decided to discuss the new lending mechanism.

Most banks are still left to decide their base rate. Although RBI has allowed banks to select their own parameters of deciding the base rate but it has directed that a parameter once chosen by a bank cannot be replaced. The key parameter is cost of funds which is set to bring a huge difference across banks.

Thus, most banks are depending on the rates decided by SBI. This way banks plan to go for competetive pricing in this regard.

The base rate system would be taking over the becnhmark prime lending rate (BPLR) which earlier used to be the basis of the lending mechanism of banks in the country. One major reason of replacing BPLR system with the base rate is that base rate is expected to bring about more transparency in the loan pricing mechanism of banks.

SBI has indicated that its base rate would be somewhere near 8%. The second largest lender of the country, Punjab National Bank has hinted that its base rate would range in between 8-8.5%.


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