Cost of deposits act as parameter for SBI's base rate
By Neelima Shankar
Jun 7, 2010
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The largest lender of the country, State Bank of India has declared that it will announce its base rate on 15th of June. The bank also said that its base rate would be calculated on the basis of the cost of deposits of the bank.

"For State Bank alone, we are looking at the cost of deposits and not the cost of funds (for the calculation of base rate). The tenure (of deposits) we have not decided," SBI Chairman O P Bhatt said.

The base rate is coming into play from 1st July 2010. Although Bhatt did not disclose the exact bas rate for SBI, he indicated that it would be somewhere around 8%.

"Right now, we have such a wide variety of options, we need to make sure that our customers do not suffer nor should the bank," Bhatt said.

Most of the banks are anticipating SBI's call before deciding upon their base rates.

RBI has allowed banks to choose their parameters for calculating base rate. But it has mandated that once a parameter is chosen by a bank it cannot be changed.

The basic idea behind implementing base rate has been to bring about transparency in the lending mechanism of banks.


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