New base rate = One-time Rs 20,000 cr profit hit for Banks

base rate

Under new calculus, base rate could be lower by around 50 bps.

The Reserve Bank of India's (RBI) draft guidelines on computation of base rate, if implemented in its current form, will significantly impact profitability of banks.

The guidelines, released late Tuesday, require banks to follow the marginal cost of funds method for base rate computation from April 1, 2016.

Estimates show the change in methodology can lower banking system base rates by approximately 50 basis points (bps) from current levels. Crucially, it will reduce banking sector profitability because return on assets (RoA) will fall by 20 bps in fiscal 2017.Read More>>

 

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