RBI gives banks time till 30 June to shift to Base Rate system

06 Jan 2011

1

The Reserve Bank of India (RBI) has extended the time for scheduled commercial banks in the country to change the benchmark prime lending rate and the methodology used to calculate base lending rate for a further six months.

The RBI has now partially modified its earlier circular allowing banks time till 30 June 2011 to change the benchmark and methodology used in the computation of Base Rate.

The Base Rate system would be now applicable for all new loans and for those old loans that come up for renewal from 30 June 2011.

Existing loans based on the BPLR system may run till their maturity. In case existing borrowers want to switch to the new system, before expiry of the existing contracts, an option may be given to them, on mutually agreed terms. Banks, however, should not charge any fee for such switch-over.

The base rate is intended to bring in a more transparent system for lending by banks.

As per the RBI directive, issued as far back as on 9 April 2010, all scheduled commercial banks (excluding RRBs) were to peg their lending rates to a Base Rate instead of the Prime Lending Rate they have been following.

The Base Rate system, which was to replace the BPLR system from 1 July 2010 was earlier extended to 31 January since most banks found it difficult to adjust to the new system is a shorter span.

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