Reserve Bank of India (RBI) proposed replacing the PLR or prime lending rate with the new base rate system according to which banks can fix their rate on the basis of their cost of funds. RBI’s circular said, “The actual lending rates charged to borrowers would be the base rate plus borrower-specific charges, which will include product-specific operating costs, credit risk premium and tenor premium.” The base rate will be the lowest rate that the bank can charge from a customer. State Bank of India (SBI) has planned to fix its base rate at around 8%.
The new system is to be in effect from 1st April 2010. The purpose of this move is to bring about more transparency in the credit market and ensure that banks pass lower fund costs to existing customers.
The current system allowed the bank to freely fix their PLR. Variable rate of interest on various loans (home loans or term loans) are calculated about this PLR. So, when the PLR is changed then only the interest rates of loans changed else it remained the same.
SBI is considering all facets of the base system and will decide according to the asset liability situation; till then they propose 8% base rate. According to SBI the base rate would not translate into higher interest rate.
Click Here To Know More About:-
You might find these relevant:
- PLR up by 50 bps | HDFC | SBI | PNB | ICICI
- Rising interest rates cause for concern | Finance Ministry
- Base rates vs Interest rates
- Base rate announcement on Wednesday | ICICI
- Base rates | SBI | PNB
- How to get Best Rate on Loan…
- Short-term corporate loan rates UP | SBI
- Banks eagerly wait for SBI’ Base Rate
- What base rate regime will do to High-cost banks
- Borrowers breath easy | No increase in rates yet – Banks