Sub-PLR lending may be history soon

Banks may not be allowed to lend below prime lending rate (PLR) anymore. The Reserve Bank of India (RBI) is working on a model to introduce a lower base rate above which all lending rates could be fixed. CNBC-TV18's Gopika Gopakumar finds out.

Below is the transcript of Gopika Gopakumar's report on CNBC-TV18. Also watch the accompanying video.

Sources say the RBI's working committee is looking to introduce a base rate above which all lending rates would be fixed. This base rate has two components: cost of funds and reserves, that will determine the cost of funding for a bank.

All lending rates would be determined by the base rate and would be higher than this base rate. So, if the base rate of a particular bank is determined, the lending rate to a particular customer will be base rate plus 'x' points. This base rate would be different for different banks. Therefore, they will determine the lending rate for each customer and each corporate. It is also learnt that bankers are currently working on different lending rates for different segments.

If the base rate is implemented, it will put an end to the sub-PLR lending that is being practised by the banks now.