Tweaks upcoming lending rate rules

MUMBAI: Reserve Bank of India (RBI) on Tuesday tweaked its norms on the new method of loan rate calculation by banks asking lenders to use the so-called marginal cost of funds calculation for even fixed rate loans up to three years. The new norms were released in December and had initially provided for exempting all fixed rate loans. Tuesday's norms say only fixed rate loans above three years will be exempt. The new interest rate calculation which is set to be adopted by banks from April 1, links banks' loan rates to new deposits and is aimed at ensuring that lending rates are linked directly with RBI interest rate moves. Banks can also use balances of deposits of up to seven days prior to the new rate setting to calculate the new interest rate a change from considering deposits only as on the previous day, RBI said. In a note Religare Capital Markets analysts Parag Jariwala and Vikesh Mehta said restricting the exemption of the new interest rate calculation to fixed rate loans of only above three years will be negative for banks.

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