Banks meet on cards for base rate consensus

To put a lid on the guessing game by the banks on each other's base rate , the country's top bankers will meet soon -at the behest of SBI- to discuss the new loan pricing mechanism. The meeting would precede SBI's base rate announcement on June 15,a fortnight before its roll out ,the SBI Chairman said. Most banks are yet to decide about their base rate and the parameters to be taken into account for calculating the new benchmark. A key parameter is the cost of funds, which can cause a huge variance across banks. For example, if a bank takes overnight cost of funds ,which is very low,its base rate will also be significantly lower from a bank,which, for example, takes one-year average cost of funds into account.
Last year,a committee constituted by RBI, reviewed the present system of benchmark prime lending rate and decided to replace it with a base rate.The base rate will be computed after taking into account all costs,including the cost of deposits, the negative carry on CRR and SLR,overheads and employee expenses.Banks cannot lend to any category of borrowers below the base rate.(BS 27052010)