Bookmark Kaumudi Online  Bookmark this site  Editor@Kaumudi  |  Marketing  Print Advt rates  |  Calendar 2012        Go!    
 
 
December 15, Friday 2017 11:33 PM       

       HEADLINES: Jisha murder: Will lose confidence of people if accused is shown mercy, says Court                                              Don’t execute solar report as it is: Govt gets legal advice                                              Don’t need any position in NDA even if offered: Thushar                                              Chalakkudi Rajeev murder: Adv Udayabhanu gets bail                                              Ockhi: Latin Catholic diocese plans to move court                                              Rajinikanth likely to meet fans soon                                              Swaraj grants medical visa to five Pak children                                              Sonia Gandhi says her 'role is to retire', Congress insists she will remain in politics                                              Amit Shah makes Rajya Sabha debut                                              Omarosa goes public with criticism after resignation                                              Kim Jong-un's top aide executed by N Korean death squad: Reports                                              Japan imposes additional sanctions against N Korea                                              Pak SC rejects petition to disqualify Imran Khan from Parliament                                              Dubai Open: Srikanth bows out, Sindhu advances                                              Fight Card announced for Vijender Singh's double title bout night                                              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
Axis Bank to launch 'Axis Start-up Social'  
E-Way bill on agenda for GST Council meeting  
Exit poll results, Sensex a 358-point lift  
Passengers could pay less for tickets: Piyush Goyal  
ATMs not to be replenished with cash after 9.00 pm: Govt  
WPI inflation up 0.7 pct in November 2017  
Jaitley urges greater thrust to MSME sector, infra creation  
IndiGo to start direct flights to Colombo  
Late buying lifts Sensex, exit polls take centre-stage  
Bajaj Finserv lowers home loan interest rates to 8.35 percent  
Big bet on SIPs: Mutual funds garner Rs 5,900 cr in Nov  
Retail inflation in Nov sees uptick to 4.88%  
Vodafone, Aviva Life Insurance offer mobility plan 'RED Protect'  
Airtel launches 4G services in Ladakh region  
Increase social security pension in budget: Experts to FM  
Sensex zooms 195 pts on strong global cues  
Air India seeks Rs. 1,100 cr loan to modify planes for VVIPs  
More participation of private enterprises needed in Aerospace sector  
ASSOCHAM calls for greater attention to agri sector  
Consumers yet to see reduced MRP stickers post GST rate cut  
Top 5 Fintech companies to look out for in 2018  
Govt hints at reviewing rates in top GST bracket  
Sensex soars 301 pts, reclaims 33,000-mark  
Sensex surges 246 pts, Nifty above 10,200  
'Korean companies keen on investing in Andhra Pradesh'  
 
Do you support Adv Aloor's criticism that judges in lower courts lack guts?
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