STATE BANK OF INDIA TO ANNOUNCE BASE RATE ON JUNE 15.

The nation's largest lender State Bank of India (SBI) (BSE:500112) on Friday said it will announce its base rate -- the new uniform benchmark lending rate below which no bank can lend -- by June 15 and the rate will be calculated based on the cost of deposits.

"We are looking at the cost of deposits and not the cost of funds (for calculating the base rate). The tenure of deposits we have not decided yet," chairman OP Bhatt told reporters here on Friday after a meeting with other Public Sector Unit (PSU) bankers on the proposed new lending rate regime which will be in effect from July.

While Bhatt refused to talk more the base rate, it is expected that this could be around 8 per cent.

"Right now, we have such a wide variety of options, we need to make sure that our customers do not suffer nor should the bank," Bhatt said.

Chiefs of leading state-owned lenders on Friday met under the aegis of SBI to discuss various operational challenges while migrating to the new benchmark interest rate system suggested by the Reserve Bank instead of the existing benchmark prime lending rate to enhance the transparency in lending.

As per the RBI norms, all banks have to shift to the base rate model on July 1 but they can tweak the parameters till December 31 to finalise their benchmark rate will be computed.

Bank chiefs who discussed the issue are Union Bank chairman MV Nair, BoB chairman and managing director MD Mallya, BoI chairman and managing director Alok Misra, and Central Bank of India executive director Ramnath Pradeep amongst others.

Most of the lenders, including private sector ICICI Bank (BSE:532174), are likely to come with their own base rates in the coming days after SBI's announcement on June 15.

Though there is no clarity as yet on what could be the base rates of different banks, it is widely expected that this would be in the range of 8-9.5 per cent.

Replying to a query, Bhatt said the major challenge to be tackled on base rate implementation would be to make customers aware about the functioning of the new system compared to the existing rate regime.

According to Bhatt, although the migration would not immediately impact the borrowing costs of customers, costs of certain products may get impacted over a period of time.

"There will not be any major changes in the cost of borrowing initially...but over a period of time, the pricing of some products can rise and for others it can fall," Bhatt said.

RBI decided to replace the BPLR with base rate as it is not happy with the way banks lend at much cheaper rates to their premium-borrowers and at high rates to the common man.

In the new model, no bank can lend below their respective base rate. Some banks had raised concern over the new model as they feel that the base rate regime will have a direct impact on the short-term corporate loans as banks generally lend at much lower rates (sub-PLR) to these clients.

Source :- tradingmarkets.com/news