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Cotton

Cotton production is likely to be more than previous year’s on the expectation of...

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RBI likely to announce sunset clause for base rate migration

With the implementation of base rate system, all new loans will be linked to base rates. But bankers are worried that long-maturity loans like infrastructure will continue in the BPLR regime if the customer refuses to switch

The Reserve Bank of India (RBI) is likely to soon announce a sunset clause with a deadline of 30 June, 2011 for all loans in the erstwhile benchmark prime lending rate (BPLR) system to migrate to the new base-rate model, reports PTI.

Banks had approached the RBI for such a clause for all BPLR-linked loans, which, otherwise, would force them to administer two types of benchmarks - base rate and BPLR - for many years in case a borrower refuses to switch to the base rate.

Asked whether the RBI has agreed to the sunset clause, State Bank of India (SBI) chairman, OP Bhatt told reporters in Mumbai that the central bank is currently examining the implementation of the clause with a one-year deadline and is likely to make an announcement soon.

"Yes, they are going to announce (the decision on sunset clause)...the RBI is currently examining the clause (with a deadline of) one year...that is by 30th June next year," Mr Bhatt said after the customary pre-policy meeting with top RBI officials ahead of RBI's quarterly policy review on 27th July.

Banks moved to the base rate regime starting from 1st July following the recommendations of an RBI-appointed panel to replace the erstwhile BPLR with the new model to improve transparency in lending. Earlier, banks used to cross subsidise top-rated corporate loans with those given to the common man.

With the implementation of base rate system, all new loans will be linked to base rates. Existing loans will be shifted to the base rate model if the customer opts for the change or upon reaching maturity.

But bankers are worried that long-maturity loans like infrastructure will continue in the BPLR regime if the customer refuses to switch.

Most of the state-owned banks, including the country's top two lenders SBI and ICICI Bank have fixed their base rates between 7.5%-8% while some other private and foreign sector banks have kept it even below to woo potential corporate clients.

Bankers met Reserve Bank deputy governor Subir Gokarn today ahead of the quarterly review late this month to discuss issues like credit growth, liquidity situation and base rate implementation, amongst other issues.

The RBI is widely expected to hike its overnight lending and borrowing rates (repo, reverse repo) by at least 0.25% at its policy review to check the double-digit inflation.

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