What New Benchmark Is RBI Mulling Upon To Decide Your Loan Rate?

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    Not satisfied with the current MCLR or Marginal cost of lending rate on which the lending rate for borrowers is based, the apex bank is yet again considering other options. And the study group established for the purpose has suggested the likes of repo rate which is the rate which apex bank lends to the banks, T-bill rate and the CD rate to be better suited.

    What New Benchmark Is RBI Mulling Upon To Decide Your Loan Rate?

    Why such an overhaul is being planned?

    The banker to the bank keeping customer's interest at the top and for better transmission of rates is considering this revision as under the current regime policy rates are transferred to the end borrowers rather slowly. And, at the end of the day, the interest rates charged by banks are decided such that banks' net interest income or NII is well cushioned.

    As per a RBI report statement "Analysis conducted by the Study Group suggests that banks deviated in an ad hoc manner from the specified methodologies for calculating the base rate and the MCLR to either inflate the base rate or prevent the base rate from falling in line with the cost of funds."

    So, even if the outside benchmark for interest rate decision is said to be better, banks need to strictly adhere to it and penalized if found guilty as then customer's interest is under doldrums.

    The adoption of this external benchmark for deciding lending rate is recommended to be April 1, 2018.

    For the same, RBI has invited suggestion from customers and other stakeholders until the October 25th deadline.


    Story first published: Tuesday, October 10, 2017, 7:26 [IST]
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