RBI likely to announce sunset clause for base rate migration

MUMBAI: The Reserve Bank is likely to announce a sunset clause with a deadline of June 30, 2011, for all loans in the erstwhile benchmark prime lending rate (BPLR) system to help banks migrate to the new base rate model.

Banks had approached the Reserve Bank for such a clause for all BPLR-linked loans, which would have otherwise forced them to administer two types of benchmarks -- base rate and BPLR -- for many years if a borrower refused to switch to the base rate.

Asked whether the RBI has agreed to the sunset clause, SBI chairman OP Bhatt told reporters in Mumbai that the bank is currently examining the implementation of the clause with a one-year deadline, and is likely to make an announcement in this regard 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 June 30 next year," Bhatt said after the customary pre-policy meeting with top RBI officials, ahead of RBI's quarterly policy review on July 27.

Banks moved to the base rate regime from July 1, 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.