RBI Directs Banks to Set Five Benchmark Rates

The Reserve Bank of India has directed banks to set five benchmark rates for different tenure ranging from overnight rates to one year, which will come into effect from April 1, 2016. In a new set a guidelines aimed at improving transmission of policy rates to end customers, RBI has issued a new formula to price lending rates known as ‘marginal cost of funds based lending rates’ or MCLR which will replace the base rate. Speaking to media announcing the recent bimonthly policy, RBI governor Raghuram Rajan said, “What the marginal cost pricing does is make the cost flow through into lending rates faster. So the intent is that at least for a time banks will be able to make incremental loans on the marginal cost pricing while their historical or the legacy loans will be on the base rate that is the intent as we going forward.” RBI on Bank Rates by www.purnartha.com

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