Base Rate is the minimum rate of interest that a bank is allowed to charge from its customers. The Working Group on Benchmark Prime Lending Rate (BPLR) (Chairman: Shri Deepak Mohanty) constituted by Reserve Bank of India (RBI) reviewed the present BPLR system and suggested changes to make credit pricing more transparent in its report in October 2009. Accordingly the RBI decided that banks will switch over to the system of Base Rate w.e.f. 1st July.2010 by replacing the existing BPLR system.
As per the recommendations all categories of loans should henceforth be priced only with reference to the Base Rate. However, the following categories of loans could be priced without reference to the Base Rate:
a) DRI advances
b) Loans to banks’ own employees
c) Loans to banks’ depositors against their own deposits.
See also Revised Guidelines on Base Rate
Base Rate shall include all those elements of the lending rates that are common across all categories of borrowers. While each bank may decide its own Base Rate, some of the criteria that could go into the determination of the Base Rate are: (i) cost of deposits; (ii) adjustment for the negative carry in respect of CRR and SLR; (iii) unallocatable overhead cost for banks such as aggregate employee compensation relating to administrative functions in corporate office, directors’ and auditors’ fees, legal and premises expenses, depreciation, cost of printing and stationery, expenses incurred on communication and advertising, IT spending, and cost incurred towards deposit insurance; and (iv) profit margin. (See illustration for computing the Base Rate)
Since the Base Rate will be the minimum rate for all loans, banks are not permitted to resort to any lending below the Base Rate. The actual lending rates charged to borrowers would be the Base Rate plus borrower-specific charges, which will include product-specific operating costs, credit risk premium and tenor premium. Banks are required to review the Base Rate at least once in a quarter with the approval of the Board or the Asset Liability Management Committees (ALCOs) as per the bank’s practice.
In case existing borrowers want to switch to the new system, before expiry of the existing contracts, an option may be given to them, on mutually agreed terms. Banks, however, should not charge any fee for such switch-over.
See Current Base Rate of Banks in India
or Comparison of Base rates of Banks in India
RESPECTED SIR
KINDLY PLEASE SEND ME CALCULATION RATE OF LOAN + WHAT IS PANEL INTEREST & ANNALSIS
Dear Mr. Bipin,
Your query is not clear. Please clarify. Regards,
Admin
Respected sir,
Currently SBI is charging me of 12.5.% interest rate for my 12.5 lakh for a tenure of 15yrs. Can you please let me know that whether SBI my branch ppl are cheating me or why this much interest rate for my loan
Dear Mr. Madan,
In order to enable us to address your query please advise the following:
i) Date of House Loan sanctioned :
ii) Whether fixed or floating.
iii) Rate of interest mentioned on your sanctioned note.
regards,
Admin
My current SBI home loan interest is 12.5%. I took the loan on June 2009. In the document it ‘s mentioned as 1.75 + or – from SBAR . The interest for 8% fixed for the 1st year. Now SBI is asking me to pay 1% as conversion fee to reduce the rate from 12.5 to 11 %
Dear Mr. Ansari,
The present SBAR is 14.75%, hence as per docuemntation the rate of interest on your housing loan should have been 13.00% while th bank is charging at 12.5%. SBI is not asking you to pay 1% as conversion fee but giving you an option to get your home loan converted to current rate by paying a conversion fee of 1%. So better chhose the option as it is benficial to you. regards,
Admin
But in last para it is mentioned clearly that
” In case existing borrowers want to switch to the new system, before expiry of the existing contracts, an option may be given to them, on mutually agreed terms. Banks, however, should not charge any fee for such switch-over.”
so why SBI demand 1% switching charge? Is their demand is valid?
Dear Koushik,
On the basis of one paragraph we are not able to draw any conclusion. It would be better if you send us (email id admin@thebankingbible.com) the scanned copy of the whole page to study and analyse.regards,
Admin
The funny thing is even after paying 1%, I will not get into Base Rate system it will be changed only wrt to SBAR. They will reduce the margin, the current margin is 1.75 srt SBAR again, they will make it 3.25 and effectively my new interest rate will be 11%. For the rate reduction they are considering the sanction amount, If sanctioned amnt > 30 Lakhs, then the revised interest will be 11% , if the amount < 30 Lakhs, then the rate will be 10.75 %. I'm not sure if I shld believe the manager's words
Dear Ansari,
The branch will obtain a option letter from you which will be signed by all co-borrowers and guarantors, if applicable. A conversion fee of 1% on the outstanding is required to be enclosed to the option letter. It is clearly mentioned in the option letter that the switch over will be at current card rates which is …..% p.a. above Base Rate. So the switch over cannot be wrt SBAR.
While converting the interest rate the Bank will check the current rate wrt to sanctioned amount only. The current home rates of SBI can be seen at the following link.
https://www.sbi.co.in/?action=viewsection&lang=0&id=0,1,20,115,744,914
Admin
1.before the change in the base rate system from 1/7/2012,what were the BPLR rates and SBAR rates of SBI and what was the difference between the two? and what was the deifinition of SBAR at that time….
2.Before the switch over my over draft loan against Gold Deposits Certificates was to be charghed at SBAR (which i presume is the Base rate of SBI at present)…Now at what rate the OD Loan should be charged on the same Loan…BPLR(SBAR) or Base Rate of SBI?
3 what is the current rate applicable in my case?
Dear Mr. Dubey,
1. Before the implemention of Base Rates (before 01-07-2010) Benchmark prime Lending Rates(BPLR), SBAR in case of SBI, were prevalent in banks. To check out the Base Rates and BPLRs rates please go through the undernoted link.
http://thebankingbible.com/historical-base-ratesbplrs-of-sbi-4503
The definition of BPLR or SBAR are available on many sites on internet..
2. As the Base Rates/BPLRs keep on changing the same cannot be advised to you in the absence of specific date. So Please advise the date of loan. Rate of interest mentioned on the Gold depsoit certificates. etc. to enable us to look into the matter.
3. As advised above.
Admin
Hi…
Which is the best option i.e. fixed rate or floating rate (base+bank %age) to chose for home loan…
Dear Arjun,
Floationg rate is always the best option in case of home loan as Fixed rates are not actully fixed. These are fixed for a certain period of time only say 2 or 3 years and are required to reset after every 2/3 years. further in case of major volatalily in the rate of interest, these can be reset even before 2/3 years. Further fixed reates are slightly higher in the beginning in comparison to floating rates.regards,
Admin
dear sir
i want to take a education loan of Rs. 3.5 lacs i have got 96.72 percentile in MAT feb 2012 and also got first in my graduation but PUNJAB NATIONAL BANK is not providing me loan for my professional course that is PGDM so please sir tell me that what should to get education loan.
Hi,
I have a query wrt to my home loan from SBI bank.
I took floating interest loan in year 2010 (May) with SBAR – 2.5 %.
Interest rate for first 3 years are 8, 9 & 9 %.
Current SBAR is 14.5 %, hence from May’13 onwards, I have to pay 12 % ROI.
But as the current base rate is 9.7%, hence ROI will be 9.7 + 0.25 i.e. 9.95 % for me (my loan amount is less than 30 lakhs.
Please let me know what is the process of changing to Base rate option, and whether SBI will be willing to do it or not ? if Bank is ready, then what will be the charges involved.
Many thanks in advance,
Amit
Dear Amit
You can opt for switching of the interest of your home loan from SBAR to Base Rate filling up a request form (available with sbi branches)and by paying a one time nominal fee of 0.56% of your current outstanding amount, the rate of interest will be changed to current roi i.e 9.70%. Any further query please do write. regards,
Admin
Hi,
I have similar query wrt to my home loan from SBI bank.
I took floating interest loan in year 2010 (March) with SBAR – 2.5 %.
Interest rate for first 3 years are 8, 8.5 & 8.5 %.
Current SBAR is 14.5 %, hence from May’13 onwards, I have to pay 12 % ROI.
I was also told the following calculation as was told to Amit
—- Current base rate is 9.7%, hence ROI will be 9.7 + 0.25 i.e. 9.95 % for me (my loan amount is less than 30 lakhs).
Question is Should it be 9.7+0.25 % or 9.7 %….Can you provide some justification.
Dear Sir,
The answer is as simple as that. Earlier the advances rate of interest were linked to SBAR and now it is being linked to Base rate for new customers. However, there is a provision for the existing customers to request for migartion to Base rate for paying a nominal fee. Migration to Base rate doesn’t mean Base Rate will apply. As the current home loan rate of SBI for loans upto Rs.30 lacs is 0.25% above Base rate i.e 9.95% p.a., so in your case ROI i.e 9.95% will apply. regards,
Admin