Saturday 19th, September 2020
canara news

Interest rate to be based on marginal cost of funds from Apr 1

Published On : 18 Dec 2015


Mumbai, (PTI) To improve transparency and ensure speedier monetary policy transmission, the RBI today said that all banks will have to follow a new uniform methodology from the next fiscal for calculation of base rate on the basis of the marginal cost of funds.

The new methodology will ensure fair interest rates to borrowers as well as to banks.

As per the final guidelines, banks will fix their lending rates as per their marginal cost of funding every month, which will be based on the rate offered on new deposits.

Under the current system, banks fix their lending rates based on the average rate of outstanding deposits.

The RBI said all banks will follow a uniform methodology for calculation of base rate or minimum leadening rate on the basis of the marginal cost of funds from April 1, 2016.

"The guidelines are also expected to ensure availability of bank credit at interest rates which are fair to the borrowers as well as the banks.

"Further, marginal cost pricing of loans will help the banks become more competitive and enhance their long run value and contribution to economic growth," the RBI said.

Welcoming the final guidelines, SBI Chief Arundhati Bhattacharya said this will be valid on new loans taken thereafter as well as loans getting renewed after that date.

"While these guidelines will benefit the new customers, existing customers will also have an option to shift to the new regime with some conditions," she said.

"With marginal cost of funds including tenor premium, we have moved closer to international manner of benchmark rates," she added.

RBI Governor Raghuram Rajan has on many occasions expressed his resentment over inordinate delays by banks in passing on interest rate cuts.

Since the rate reduction cycle that commenced in January, less than half of the cumulative policy repo rate reduction of 125 basis points has been transmitted by banks. The median base lending rate has declined only by 60 basis points.

As per the final guidelines: "All rupee loans sanctioned and credit limits renewed w.e.f. April 1, 2016 will be priced with reference to the Marginal Cost of Funds based Lending Rate (MCLR) which will be the internal benchmark for such purposes."

Many banks currently follow average cost of funds or 'blended cost of funds (liabilities) method' for calculating the base rate, while a few already take into account the proposed measure of 'marginal cost of funds'. .







More News

Sensex, Nifty fall 1% as crude oil prices surge
Sensex, Nifty fall 1% as crude oil prices surge
Aamir Khan calls 'Thugs of Hindostan' role one of his toughest
Aamir Khan calls 'Thugs of Hindostan' role one of his toughest
Fuel prices continue to fall as global crude rates ease
Fuel prices continue to fall as global crude rates ease

Write your Comments

Disclaimer: Please write your correct name and email address. Kindly do not post any personal, abusive, defamatory, infringing, obscene, indecent, discriminatory or unlawful or similar comments. canaranews.com will not be responsible for any defamatory message posted under this article.

Please note that under 66A of the IT Act, sending offensive or menacing messages through electronic communication service and sending false messages to cheat, mislead or deceive people or to cause annoyance to them is punishable. It is obligatory on CANARANEWS to provide the IP address and other details of senders of such comments, to the authority concerned upon request.

Hence, sending offensive comments using canaranews will be purely at your own risk, and in no way will canaranews.com be held responsible.