Base rates shift base from April to July
By Joseph Samson
Mar 9, 2010
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Base rate system which has been in the limelight since quite some time has still some more days to hit the banking platform. The Reserve Bank of India has declared that the base rate system which was to become effective from 1st April 2010 will now be applicable from 1st July 2010.

"It will start from July 1. They (banks) wanted some time," RBI Deputy Governor Usha Thorat said. The decision was taken after the top officials of banks had a meeting with RBI Deputy Governor, Subir Gokarn regarding the postponing of date of implementation of the base rate from 1st April 2010.

The Indian banks had started lending their prime customers at rates below the standard BPLR. Their prime customers constituted of big corporates. This will not be possible from 1st July.

RBI has been concerned for quite some time over sub prime lending by banks on short term loans and mortgage borrowing as the economy is teeming with liquidity. Seeing the banks' trend of increased sub prime lending, the Central Bank has arrived at this decision.

As per the base rate system of lending, the actual lending rate will be base rate plus borrower specific charges pertaining to risk premium and creditworthiness of the borrower.

Once the new system is introduced, then the existing borrowers would be paying interest at the earlier rates and the new customers would be availing loans on the basis of the base rate.

On this note too banks have sought from the RBI that home loan rates not be set as per the base rate as this will lead to a hike in home loan rates making it less affordable to the common man.

But the RBI's objective behind this massive change in the entire loan pricing system is to bring about transparency in the system. This new system will prevent excessive lending by banks to sectors such as real estate whose market trend is very volatile.


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