Bookmark Kaumudi Online  Bookmark this site  Editor@Kaumudi  |  Marketing  Print Advt rates  |  Calendar 2018        Go!    
 
 
July 19, Thursday 2018 1:43 AM       

       HEADLINES: Bihari woman found hanging in seminary                                              New assignment for ADGP Sudhesh Kumar                                              PC George turns violent at Paliyekkara toll plaza, toll barrier destructed                                              I pulled down barrier...civil rights can be protected this way only: P C George                                              Abhimanyu murder: Main accused Muhammad arrested                                              Dogs who sniffed out Bin Laden to help CISF                                              Reham Khan’s autobiography mentions Shah Rukh Khan                                              PM ready for any discussion as monsoon session of parliament begins                                              6 held for 'sexually assaulting' Russian tourist in TN                                              MiG 21 crashes in Kangra district of Himachal                                              Google fined 5 billion dollars by EU                                              Root and Morgan clinch decider for England in ODI series                                              Kaumudi Facebook
       BUSINESS Next Article: India to renegotiate LNG rate with US, Russia  
       RBI comes down heavily on MCLR, moots external benchmark
 
         Posted on :22:24:06 Oct 4, 2017
   
A A
       Last edited on:22:24:06 Oct 4, 2017
         Tags: RBI comes down heavily on MCLR, moots externa
 
Mumbai: The Reserve Bank today flayed lenders for keeping interest rates high and flagged concerns over base rate and marginal cost of fund-based lending rate (MCLR), saying these have not improved monetary transmission.
 
An internal RBI group also suggested switching over to an external benchmark in a time-bound manner so that better rates are available to borrowers.
 
"The RBI study group has observed that internal benchmarks such as the base rate/MCLR have not delivered effective transmission of the monetary policy," RBI said in a report today.
 
The group was constituted by RBI to study various aspects of the MCLR system from the perspective of improving the policy transmission.
 
RBI introduced MCLR on April 1, 2016 after finding that the then prevailing base rate had failed to achieve the objectives of easier and faster policy transmission. Before the MCLR was rolled out, the banks were following a more rigid base rate system, which came into force on July 1, 2010 replacing the banks' prime lending rate.
 
The study group submitted its report on September 25.
 
"Arbitrariness in calculating the base rate/MCLR and spreads charged over them has undermined the integrity of the interest rate setting process," the study group has observed.
 
The base rate/MCLR regime is also not in sync with global practices on pricing of bank loans, it said, adding that "the study group has, therefore, recommended a switchover to an external benchmark in a time-bound manner".
 
Addressing the media, RBI Deputy Governor Viral Acharya said the report has proposed three possible external benchmarks to which such lending could be tied to going forward.
 
"We think the internal benchmarks such as the base rate and MCLR, based on data, seem to give banks very high amount of discretion, lots of factors that are flexible to them to ensure that the lending rate can be kept high even if monetary policy is going down and accommodative," he said.
 
He also said the move is to address the above mentioned lacunae by bringing in a better global benchmark wherein these rates are tied to external benchmarks as "this will create a fair bit of transparency for borrowers and they can just compare two loans and see which is at the lower spread because the benchmark will be the same".
 
The report also suggests that "the interest rate resets, which are right now at an annual frequency, creating potentially a one-year lag in transmission, can be changed on all floating rate loans to quarterly resets so that transmission would be much faster once the monetary policy changes".
 
The central bank will release a detailed report of the study group later in the day to solicit comments from members of public and stakeholders.
 
RBI will take a final view on the recommendations of the study group after taking into account the feedback received until October 25, 2017.
 
The previous RBI governor Raghuram Rajan introduced the MCLR to calculate the benchmark lending rate in another attempt to make banks pass on policy rate cut benefits to borrowers quickly and in a more transparent manner.
 
Under the base rate and BPLR, banks were following individual methodologies for computing the minimum rate at which they could lend. Under the MCLR, RBI asked all banks to follow the marginal cost of funds method to arrive at their benchmark lending rate.
 
MCLR is calculated after factoring in banks' marginal cost of funds (largely, the interest at which they borrow money), return on equity (a measure of banks' profitability), and negative carry on account of cash reserve ratio.
 
Banks can review MCLR once a quarter till March 2017, after which they were asked to publish the MCLR on a monthly basis. Lenders have to specify the interest reset dates on their floating rate loans.
A A
       BUSINESS
Next Article: India to renegotiate LNG rate with US, Russia
 
 
BUSINESS HEADLINES
Sensex slides 146 pts on profit-booking, political developments  
India prepared to impose 'safeguards' if steel imports rise: government source  
Nickel falls on lower demand  
May announces new 2 bn pounds UK-Italian fighter jet project  
Infosys shares soar 6% after Q1 earnings  
Rupee slips 6 paise against US dollar  
Niti Aayog working on proposal to replace LPG subsidy with cooking subsidy: Kumar  
India to be $10 trillion economy by 2030: Garg  
No question of closure of DCI; 3 ports to pick up govt stake: Gadkari  
India to be $10 trillion economy by 2030: Garg  
Markets slip from record to end flat on profit-booking  
Markets slip from record to end flat on profit-booking  
No question of closure of DCI; 3 ports to pick up govt stake: Gadkari  
Retail inflation rises to 5 percent in June  
Retail inflation soars to 5% in June, IIP presides to 3.2% in May  
Indian Army signs MoU with SBI on salary package  
US dollar ends sharply lower against rupee  
Gold, silver recover on mild demand  
BSNL starts first internet telephony service in India  
Sensex nears all-time high; TCS shines on Q1 show  
Gold futures gain 0.06% on global cues  
Goyal asks Coal India to ensure supply for power sector  
Grex Alternative Investments Market looks to raise $100 mln  
Cong targets PM over fall in value of Rupee  
Set up central agency to evaluate big loan proposals: ICAI  
 
Do you support Kottayam collector's warning against selfies at water-logged places?
yes
 
no
 
no opinion
 
 
 
Home Kerala India World Business Sports Sci&Tech Education Automobile CityNews Movies Environment Letters 
© Copyright keralakaumudi Online 2011  |  Reproduction in whole or in part without written permission is prohibited.
Head Office Address: Kaumudi Buildings, Pettah P.O, Trivandrum - 695024, India.
Online queries talk to Deepu Sasidharan, + 91 98472 38959 or Email deepu[at]kaumudi.com
Customer Service -Advertisement Disclaimer Statement   |  Copyright Policy