RBI initiates transparent loan pricing with BPLR committee

The Reserve Bank of India (RBI) on Wednesday circulated the first draft report to the members of the benchmark prime lending rate committee. The RBI had set up this committee to ensure banks calculate their prime lending rates (PLR) more transparently and that the calculation of this benchmark prime lending rate (BPLR) will determine whether the cut in interest rates is passed on to all borrowers. CNBC-TV18 correspondent, Vidhi Godiawala reports what the draft suggests.

Here is a verbatim transcript of her comments on CNBC-TV18. Also watch the accompanying video.

The first draft has been circulated to the members on Wednesday and we are picking up from our sources that the banks will be allowed to announce only one reference rate which is currently the PLR. It will be called the base rate and when the base rate falls or is cut, logically all the floating rates should fall as well.

Sources are telling us that the calculation of this base rate as suggested in the draft report is the base rate will be equal to the marginal cost of deposits, the cost of the statutory liquidity ratio (SLR) and the cash reserve ratio (CRR), the banks' profit margins and other capital charge and the cost of current account/saving account (CASA) will be netted off to arrive at this base rate.

What we are also picking up from our sources is that there will be a ceiling of 15% for banks to lend below or sub-BPLR lending. RBI now had constituted this committee to bring out more transparency in the loan pricing because more than 75% of the loans went sub-PLR. We are also picking up that the final report should be out next week. So as of now it is a 15% ceiling which this draft report suggests on the sub-PLR lending and one reference rate which will be called the base rate.