Eight months after the introduction of base rate and switching from the bench mark prime lending rate (BPLR) system, the banks are once again reviewing the methodologies for fixing the base rate.
Though the Reserve Bank of India had given time till December-end to finalise the mothodologies, the central bank had extended it by another six months.
MV Nair, CMD, Union Bank of India said that UBI has changed its methodology recently.
?In our bank’s case, we had taken three month’s cost of fund as the benchmark in the beginning. It was quite close to the real time base rate. Then, finally we found that cost of fund for the three months may not be the benchmark going ahead. After all the deliberations, we decided to change the benchmarkto six-month card deposit rates.” The customer’s preference for six month to one year term deposit comprises almost 80% of the total deposits, he said..
?In fact, it was we who had requested the RBI to extend the deadline. It gives us some more time to change the benchmark we choose. Once you choose the benchmark, you can’t change,” he explained. P Sitaram, chief financial officer, IDBI Bank, said that the bank was reviewing time to time about the mothodologies.
?We will look at how does interest rate move and how does it behave before finalising our major component for the base rate,” he added.
M Narendra, CMD, India Overseas Bank said that the major component of the bank’s base rate was 90-day fixed deposit.
?Earlier, we were having three quarters’ average cost of deposit as a major component, but we didn’t find it viable and hence we had to change it during December. Now, when the RBI has given us additional time to think about, we will definitely look into it,” he said.
IOB’s 60% of borrowers have already shifted from BPLR regime to the base rate one so far. Jagdish Pai, executive director, Canara Bank said the bank may review its methodology for fixing base rate after April.
VR Iyer, ED, Central Bank of India said that the bank is relying on the six months’ tenor deposit rate for fixing the base rate. ?But, I do see volatility in the interest rate in the current scenario as it is impacting our cost of fund. Hence we may review the methodology. But no call has been taken on the topic as yet,” he observed..
An official of Dena Bank said that the cost of deposit for the last quarter is the major component for calculation of bank’s base rate. ?Earlier, our major component for calculation of base rate used to be the average of past four quarters’ cost of deposit. We may review it, but nothing has been finalised on the front as yet,” he noted. Mohan Tanksale, ED, Punjab National Bank (PNB) said that the current cost of deposits were the major component for calculating the bank’s base rate. Still, the bank’s ALCO would examine the existing system and find out if there was any need to change the components of base rate calculations.