RBI urges banks to follow a uniform methodology from April next year

The Reserve Bank of India (RBI) has said that all banks will have to follow a new and uniform methodology from April next year. The announcement is likely to affect the calculation of the base rate as per the marginal cost of funds.

In a press release, the RBI said that apart from helping borrowers reap the benefit of lower rates, the step would also improve transparency in the methodology followed by banks for determining interest rates on advances.

"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," added statement.

 

As per the final guidelines from the RBI, all rupee loans sanctioned and credit limits renewed with effect from April 1st, 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.

Meanwhile, the State Bank of India, which controls close to a quarter of the financial system welcomed the new RBI guidelines, saying that the domestic banking sector has moved closer to global practices.

"Though the Reserve Bank directive on the new pricing methodology is for fresh loan pricing only, existing SBI customers can migrate to the latest system," said Chairperson, SBI, Arundhati Bhattacharya.