Lending Rates Deregulated

Saturday, February 20, 2010 Posted by sauravtibrewal

Banking sector has seen several reforms in the recent past. The policy makers including Reserve Bank of India (RBI), the ministry and the government have sought to improve the functionality of the system in order to augment the robustness of the sector.

In a recent move, The RBI has decided to replace the existing concept of Benchmark Prime Lending Rate (BPLR) with Base Prime Lending rate. The proposed method is said to more scientific than the present system for calculating BPLRs. Calculating the base rate will take into account the cost of deposits, cost of complying with CRR and SLR requirements, and the need to retain a profit margin. In addition, the proposed change is likely to address the concerns of borrowers about the transparency in dealing with the existing lending practises.

But what needs to be understood is the impact that this move will have on the banks. There have been mixed reactions from the banking community. Some banks have welcomed the move, as it might reduce unhealthy competition among bankers and simultaneously help borrowers get finance support at reasonable rates depending upon the tenure of the loan. However it does leave huge liquidity at the disposal of big banks.

It is the understanding of these dynamics, caused by such reforms which is of utmost importance to management students. As future corporate leaders or policy makers, the students need to know not only the implications of such policy decisions but also the difficulties faced during their implementation.

Cashonova, the finance club of IIFT thus seeks to invite opinions of the students on this subject.


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