RBI Draft  guidelines norms on marginal cost of fund not feasible: SBI

Bhattacharya also suggested that for banks to pass on the repo rate rate cut to borrowers, on the lines of the fixed tenure and rates on deposits, on the lending side too, lenders should be allowed to immediately charge lower interest only for new loans. On old loans, the new rates could be applicable only after a year, she suggested. Further, repo rate was a “blunt instrument” in deciding the interest rate, she added.

“We need to look at how we can balance the book better. For example, if our deposits are at fixed rates, the borrowing should also be on a fixed rate, to be re-priced only one year later. In that case, if I cut the base rate, only the new borrowings will be on that rate, not the old one. Maybe, we will have to do tweaking of this nature for a more frequent passing of rate cut,” Bhattacharya said.

RBI had come out with draft guidelines for the new way computation of base rate in September, where it had proposed to link it to the marginal cost of fund or the incremental cost of borrowing more money to fund assets or investments.

“As RBI had asked, we have given our responses. RBI will come out with different guidelines. What they had suggested initially is something that is not going to work. The suggestions have been given by all banks,”said #ArundhatiBhattacharya.

In its fifth bi-monthly monetary policy statement on Tuesday, RBI had said it would shortly announce the new formula for base rate.