RBI de­vises rules to en­sure rate cut ben­e­fits passed on

Hindustan Times ST (Mumbai) - HT Navi Mumbai Live - - FRONT PAGE - HT Cor­re­spon­dent ht­metro@hin­dus­tan­times.com

The RBI on Thurs­day an­nounced a new set of rules to cal­cu­late in­ter­est charges, a move aimed at prompt­ing banks to fully pass on the cen­tral bank’s rate cuts to fi­nal con­sumers.

Ac­cord­ing to the new rules, ef­fec­tive from April 1 next year, banks will have to fix their “base rate”, the floor rate to which all lend­ing rates are linked, on the “mar­ginal cost” or the in­ter­est rate banks of­fer to new de­posits.

This is dif­fer­ent from the ex­ist­ing sys­tem where banks fix the base rate on the “av­er­age cost” that in­cludes all ex­ist­ing bor­row­ers. The RBI has cut its key lend­ing rate by 1.25 per­cent­age points since Jan­uary. Ideally, the float­ing home loan rates should have come down by an iden­ti­cal mar­gin. This hasn’t hap­pened, with banks re­duc­ing their av­er­age lend­ing rates by only 0.60 per­cent­age points.

“Apart from help­ing to im­prove the trans­mis­sion of pol­icy rates into the lend­ing rates of banks, th­ese mea­sures are ex­pected to im­prove trans­parency in the method­ol­ogy fol­lowed by banks for de­ter­min­ing in­ter­est rates,” the RBI said in a state­ment.



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