The request by some banks for getting the freedom to fix borrower specific base rates for car loans has been shot down by the RBI. The banks are not even permitted to charge negative premium while computing the effective base rate.
After the RBI’s ultimate order regarding base rate, few banks had asked RBI to relax the base rate rules.
A negative premium implies that the banks would be forced to lend below the base rate. The RBI has rejected this requested saying that lending below the base rate would not be permitted. The RBI supports its position saying that Base rate has been employed in order to introduce clarity in the system.
Few banks who had expected their base rate to fall somewhere between 8-9% would have to stop lending for short term to the corporate sector. The main reason for this is the fact that interest rates on short term loans vary as per overnight rates which fall below 8%.
The annual monetary policy stressed on base rate replacing BPLR in order to make the lending mechanism a clearer affair.
RBI has permitted banks to choose their own parameters for computing base rate but has said that a parameter once selected cannot be changed.
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