Come Friday, the benchmark rates are expected to be lower by 80-90 basis points (bps) for short-term credit as banks begin to price new loans on the basis of marginal cost of funds.
It will drive financially sound companies’ hunt for the best lending rate (for short-term credit) under the new regime, leading to some competition among banks.
This could also hit the issuance of commercial papers (CPs) as companies begin to avail of credit limits than to use the money market for short-term need, bank executives said.
The Reserve Bank of India (RBI) has prescribed the new system to improve transmission of monetary policy. TheRBI has cut key policy rate (repo rate) by 125 bps, since January 2015 to 6.75 per cent now.
Responding to the central bank’s actions, banks also reduced their benchmark lending rates (base rate) but not in same proportion. They have cut by 55-75 bps. They brought-down deposit rates by 85-100 bps in past 12 months, according to RBI data.Read More.
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