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Base rate calculation guidelines for banks by Nov-end: RBI

To ensure effective transmission of its policy rate decisions by banks, the RBI on September 1 had proposed a uniform methodology for computation of their base lending rates on the basis of marginal cost of funds.

September 29, 2015 / 06:34 PM IST
 
 
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Reserve Bank on Tuesday said it will issue guidelines by November-end for banks to calculate the base rate on the basis of marginal cost of funds.

To ensure effective transmission of its policy rate decisions by banks, the RBI on September 1 had proposed a uniform methodology for computation of their base lending rates on the basis of marginal cost of funds.

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'.


"Guidelines will be issued by end-November 2015," the central bank said. While the RBI had reduced short-term lending rate by 0.75 percent during January-June 2015, the median base lending rates by banks fell only about 30 basis points despite extremely easy liquidity conditions.

However, SBI today further reduced its base rate by 0.4 percent following another 0.5 per cent cut in repo rate by the RBI. Andhra Bank too has reduced its base rate.

The RBI further said based on the feedback received, the recommendations of the Gandhi Committee on Urban Cooperative Banks will be considered for implementation during the second half of 2015-16.

The committee has given suggestions on permissible business lines, appropriate size, conversion of UCBs into commercial banks and licensing of new UCBs.


On the March 2015 discussion paper titled 'Large Exposures Framework and Enhancing Credit Supply through Market Mechanism', the RBI said it will issue a draft circular by end-December 2015.

The Discussion Paper focused on the need to encourage alternative sources of funding to bank credit for the corporate sector to finance growth. This would also de-risk the balance sheets of banks.


To bring in greater transparency, better discipline with respect to compliance with IRACP norms as well as to involve other stakeholders, the RBI said it will mandate disclosures in the notes to accounts to the financial statements of banks where such divergences exceed a specified threshold.

As a part of its supervisory process, the Reserve Bank assesses compliance by banks with extant prudential norms on income recognition, asset classification and provisioning (IRACP).

The RBI further said it has recommended to the Ministry of Corporate Affairs a roadmap for the implementation of IND AS by banks and non-banking financial companies from 2018-19 onwards.


The RBI had constituted a Working Group for its implementation.

"The Report of the Working Group will be placed on the Reserve Bank's website by end-October 2015 for public comments," the RBI said in the monetary policy statement. 

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