New Delhi: The RBI has now put forward a suggestion that the BPLR be done away with altogether. Instead, it argues, there should be a “base rate”, which cannot be fixed arbitrarily as the BPLR was, but would be the sum total of various elements of costs for banks. Since the cost elements are known, they can be monitored. Unlike BPLR, banks would have to move the base rate upwards or downwards each time RBI tweaks monetary policy to increase or decrease cost of funds. RBI has suggested that bank boards should review the base rate every quarter. Floating rates, in the new arrangement, would be fixed as base rate plus a mark-up, so every time the base rate changes, so would the floating rate for all customers, if the system works as intended. That is, of course, assuming that the RBI can ensure that banks do not charge differential markups from new and old customers. Another positive for potential borrowers would be that the interest rate on education loans cannot be more than two percentage points above the base rate.
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