New fund cost calculation: SBI says awaiting clarity from RBI

MUMBAI: The nation's largest lender SBI today said it is awaiting clarity on fixing lending rates on the marginal cost of funds as suggested by the Reserve Bank for better transmission of monetary policy.

"We are waiting for further guidelines from the regulator," State Bank of India Managing Director and Group Executive for National Banking B Sriram told reporters here.

Sriram said the bank went by the older system of computation when it cut the base rate by 0.15 per cent to 9.85 per cent.

This rate cut followed Governor Raghuram Rajan's hard-talk blaming the lenders for not passing its previous rate moves.

"We have gone by the old average of seven days to one year," Sriram said.

To ensure a better policy transmission, Rajan had during the April 7 policy said the central bank would "encourage" lenders to move to computing base rates as per the marginal cost of funds.

This was followed by sharp comments by Rajan, who rubbished banks' contention of a high cost of funds as the inhibiting factor for rate cuts as "nonsense".

"At present, banks are 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).

Base Rates based on marginal cost of funds should be more sensitive to changes in the policy rates," the RBI said in the policy.

"To improve 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," Rajan had said.

When asked if a shift to the marginal cost of funding-based methodology for base rate computation would shoot up margins, Sriram said it is too early to speculate until we have the final guidelines.