RBI may give banks time till June 2011 to switch to base rate system

12 Jul 2010

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The Reserve Bank of India (RBI) is likely to extend the deadline for banks to migrate to the new base-rate model from the existing base prime lending rate (BPLR) to 30 June 2010.

The central bank is expected to add a sunset clause to its earlier notification asking banks to benchmark lending rates on the base rate beginning 1 July 2010.

Speaking on the sidelines of the bankers' customary meeting with the Reserve Bank governor prior to the central bank's quarterly monetary policy review due on 27 July, State Bank of India chairman O P Bhatt said the RBI is examining the implementation of the clause and is likely to announce a one-year deadline for its implementation.

Banks had moved the Reserve Bank seeking relaxation in the deadline saying that the 1 July deadline would force them to administer the older system also along with the base-rate system in case a borrower refuses to switch to the new system.

Banks switched to the base rate regime from 1 July following an RBI directive.

An internal committee of the RBI had recommended the replacement of the erstwhile BPLR system with the more transparent system.

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