The country’s largest lender, State Bank of India has finally declared its base rate at 7.5%. With this declaration, the banking major has moved to a new era of banking, thus giving away the opaque lending mechanism of the Indian banking industry and moving in for a more leveled system of lending.
The base rate set by the bank is 200 basis points above the six-month cost of funds which would help in protecting its margins.
About 3% of the corporate loans of SBI are below 7.5%. These would be brought into the base rate level once they come up for renewal after 1st July.
“Over a period of time, several concerns have been raised about the way the benchmark prime lending rates system has evolved,” the Reserve Bank of India (RBI) had said. It includes, “lack of transparency, downward stickiness and perception of cross-subsidisation in lending.”
With base rate coming into play, no bank can lend below this rate as used to be the case with BPLR system of lending.
SBI’s home loan customers will continue to pay the same rate under the new system as they paid earlier.