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Unlike the BPLR that was set somewhat arbitrarily by banks, the base rate will follow an explicit formula that factors in a bank's cost of deposits, operating costs (expenses of running its branches, for instance), the cost of statutory drafts on bank funds imposed by the Reserve Bank of India (the Cash Reserve Ratio and Statutory Liquidity Ratio) and the profit margin. RBI has stipulated that banks cannot charge below the base rate for most loans. (There are a couple of exceptions like agricultural loans and export credit.)
y
The other thing that the base rate could prevent to a degree is what regulators term 'predation' -- the phenomenon of large banks dropping loan rates way below costs to grab market share.
y
Unlike the BPLR that was set somewhat arbitrarily by banks, the base rate will follow an explicit formula that factors in a bank's cost of deposits, operating costs (expenses of running its branches, for instance), the cost of statutory drafts on bank funds imposed by the Reserve Bank of India (the Cash Reserve Ratio and Statutory Liquidity Ratio) and the profit margin. RBI has stipulated that banks cannot charge below the base rate for most loans. (There are a couple of exceptions like agricultural loans and export credit.)
y
The other thing that the base rate could prevent to a degree is what regulators term 'predation' -- the phenomenon of large banks dropping loan rates way below costs to grab market share.
