Banks may make available data on cost of credit post introduction of MCLR rates to assess impact on interest rates for Industry/MSME export sector: FIEO

Ludhiana, May 16, 2016: Shri S C Ralhan, President, FIEO while commenting on the latest credit-offtake data to industry stated that the RBI had in its Monetary Policy Statement 2015-16 announced on April 7, 2015 that for monetary transmission to occur, lending rates have to be sensitive to the policy rate. With the introduction of the Base Rate on July 1, 2010 banks could set their actual lending rates on loans and advances with reference to the Base Rate.

RBI had informed that, banks were following different methodologies in computing their Base Rate – on the basis of average cost of funds, marginal cost of funds or blended cost of funds (liabilities) and, as such, base rates based on marginal cost of funds should be more sensitive to changes in the policy rates.

With the objective of improving the efficiency of monetary policy transmission, the Reserve Bank will encourage banks to move in a time-bound manner to marginal cost of funds based determination of their Base Rate which would be effective from 1st April 2016.

FIEO Chief stated the change in base rates using MCLR methodology would also be useful in determining impact on interest equalization for the export sector since a more competitive base rate would imply a better rate of interest being offered by bank to MSME export sector.