RBI TO STUDY EXTERNAL BENCHMARK
Observing that the current system of determining lending rates based on the marginal cost of funds has not delivered effective transmission of monetary policy, an internal study group constituted by RBI has recommended a switchover to an external benchmark in a timebound manner.
RBI would solicit comments from the public and other stakeholders before taking a final view on the recommendation.
Taking a dig at the banks, the Reserve Bank said that the arbitrariness in calculating the base rate/MCLR and spreads charged over them has undermined the integrity of the interest rate setting process.
The base rate/MCLR regime is also not in sync with global practices on pricing of bank loans.
“Last time we had alluded to the stickiness of base rate and constituted a committee to go through the entire mechanism of base rate and MCLR.
“The study group has, therefore, recommended a switchover to an external benchmark in a timebound manner. In the meantime, we did speak to the banks on the stickiness of this base rate as large portion of the exposure is still based on the base rate.
“We have seen that a few banks have marginally brought down their base rate in the meantime. Hopefully, once a decision is taken on the report, we will have a much better transmission of the monetary policy,” said N.S. Vishwanathan, deputy governor, Reserve Bank of India.