In its recommendations to the Working Group on benchmark Prime Lending Rates (BPLR), the Indian Banks association has proposed the replacement of the BPLR with a base rate. If the RBI accepts this recommendation, then banks will not be able to lend below the base rate as it will not be viable.
As banks will need to add their operational costs to the base rate for lending, the rates could vary across segments and banks.
The system of BPLR, according to the RBI, has evolved in such a manner that it has lost its relevance as a meaningful reference rate as the bulk of the loans are advanced below BPLR. Further, this impedes the smooth transmission of monetary signals and makes the loan pricing system non-transparent. Hence, the RBI, in June 2009, set up a committee to review the BPLR system and suggest changes to make credit pricing more transparent. The committee is expected to submit its report on October 16.
