Banks to implement Base Rate method from June

The Reserve Bank of India has extended the deadline for the banks to implement the new method for computing Base Rate. Base rate is the rate below which the banks can not lend money to any one. The new deadline imposed by the RBI is 30^th June.

In a notification RBI said “Banks are permitted to change the benchmark and methodology used in the computation of base rate for a further period of six months, i.e. up to June 30, 2011,"

Earlier bank used Benchmark Prime Lending Rate, but there were complaints from the customers that the banks were charging very low interest rates to some of their customers. This is when RBI came up with the proposal Base Rate. The motive behind the introduction o Base Rate by the RBI was to bring transparency in the lending operations of the banks.

Under the new system the customers are charged above the base rate according to their credit profile , it solely depends on the bank that how much extra the bank charges the customer.