State Bank wants Benchmark Prime Lending Rate(BPLR) scrapped

http://www.business-standard.com/india/news/state-bank-wants-benchmark-prime-lending-rate-scrapped/482651/

Led by State Bank of India — the country’s largest lender — banks have asked the Reserve Bank of India to invoke the sunset clause on benchmark prime lending rate (BPLR), and has argued such a move will reduce interest rates for customers by 50-75 basis points as they will shift to base rate.

BPLR is the erstwhile benchmark rate for all loans, and was replaced by base rate in July 2010. While all new loans were disbursed using base rate as the reference, it was not made mandatory for old customers — who were given loans in the BPLR regime — to shift to base rate. When the base rate was introduced in 2010, even then bankers had demanded the end of the BPLR regime by invoking the sunset clause.

Bankers said borrowers were given loans at sub-BPLR rates while in the base rate regime. But a spread was added to the base rate. Yet, effective lending rate under base rate is still 50-75 bps lower than that of the BPLR regime. They said only about 30 per cent of the borrowers are yet to shift to the base rate despite continuing to pay higher interest.

In 2010, banks had requested RBI to invoke the sunset clause. The regulator refused, citing legal complications as the banks had entered into a contract, which needs to be honoured, while giving a loan, and the customer cannot be forced to shift to base rate.