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Will replacement of BPLR by base rate lower loan rates for consumers?

Created by : Rashmi Patil, Financial services  | 02 15 2010 11:53:47 +0000
Industry : BankingFunctional Area : India(Markets)
Keywords : replacement base rate lowering loan rates bplr
Activity:  238 views;  last activity : 07 06 2010 20:18:09 +0000

The special invitational or teaser rates for new home loans which were less than those offered to earlier customers are set to be withdrawn which means a hike of up to 2% in interest rates offered by both private and public banks in the next one month.

The move by banks to raise their interest rates is also in line with the RBI asking banks to follow a common Base Rate system that should replace their existing PLR system with effect from April 1, 2010. Banks may determine their actual lending rates on loans and advances with reference to the base rate.

So users, will replacement of BPLR by base rate lower loan rates for consumers?

  
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In the calculation of base rate we are taking only the non allocatable operating cost because taking all the operating cost will cause larger dispersion of base rate from bank to bank. Coming to lending rate, it requires credit risk and tenor risk to be added with the product specific operating cost. Hopefully it is lower.
By shome suvra chakraborty, costing &MIS, Patton International Ltd  | 02 15 2010 23:48:20 +0000
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On the maximum, this replacement will bring the interest rate down to affordable level to consumers but the main goal behind the replacement is to pass on the benefit to consumers automatically, as it is based on the cost of fund. So, I think it's a good move by the RBI.
By Rashmi Patil, Financial services  | 02 15 2010 11:53:47 +0000
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In my view, for reduced rated the business profile of the bankers must change, not the BPLR. So, This replacement doesn't seem to be lowering loan rates for customers.
By Jyoti Rath, Sr. Associate, Barclays  | 02 15 2010 11:59:13 +0000
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