Industry body Assocham today said the Reserve Bank's panel suggestion to have base rate for lending would ensure transparency and efficiency in pricing loans, which the current system of BPLR does not provide.
"The current methodology adopted by banks for calculating benchmark prime lending rate (BPLR) is not transparent since it is never disclosed to the public," it said in a statement.
Yesterday, an RBI working group recommended the replacement of the BPLR system with a base rate mechanism.
Under the proposed mechanism, all banks will be required to declare a base rate and charge interest rates over that depending upon the credit profile of the borrower and repayment period.
The rate would include those cost elements which can be clearly identified and are common across borrowers.
The new system of having base rate should be applicable to all customers and not the fresh ones as hitherto, the industry body said.
Assocham said that the inefficient and not so well managed banks pass on such cost to borrowers which is neither fair nor competitive.
"This will also help to price loans efficiently and dispense with other existing unrelated parameters which include detailing of borrowers fee based business," it said.
