RBI gives banks time till 1 July to implement base rate system

The new base rate system that would replace the current base prime lending rate (BPLR) system of commercial banks would be effective 1 July 2010, instead of 1 April as planned earlier.

The Reserve Bank of India (RBI) today said it had decided to introduce the new base lending rate for commercial banks from 1 July 2010 and will shortly issue a circular in this regard.

"A final circular on the base rate system will be issued shortly taking into account comments received from various stakeholders and the discussions with banks," RBI announced after a meeting with bankers in Mumbai.

Banks have to base their actual lending rates for both loans and advances on the base rate beginning 1 July.

The RBI had placed a draft circular on the base lending rate on its website on 10 February 2010, inviting comments from various stakeholders. (See also: New Base Rate to replace banks' BPLRs from 1 April).

The RBI said it had received many comments/suggestions from various stakeholders after the draft announcement was placed on its website.

In order to take a final view on the base rate, the RBI today held a meeting with select public sector, private sector and foreign banks.

While individual banks are free to decide their base rate, it should be based on the cost of deposits, adjustment for the negative carry in respect of CRR and SLR, unallocatable overhead costs of banks such as aggregate employee compensation relating to administrative functions in corporate office, directors' and auditors' fees, legal and premises expenses, depreciation, cost of printing and stationery, expenses incurred on communication and advertising, IT spending, and cost incurred towards deposit insurance and profit margin.