Banks adopt new rate formula

Consumer loans became cheaper with banks moving to a new way of setting lending rates following RBI’s diktat to ensure faster and effective transmission of its policy rate cuts to borrowers.

  • A number of banks, including ICICI, Bank of India, IDBI today joined their peers like SBI, HDFC Bank and Axis Bank to make a shift to lending rates based on marginal cost of funds.
  • Other banks that have adopted new methodology for calculating lending rates include Kotak Mahindra Bank, Yes Bank and Oriental Bank of Commerce.
  • Banking major SBI, HDFC Bank, Axis Bank, among others would move to new methodology for setting lending rates from April 1.
  • RBI had asked banks to price fixed rate loans of up to three years based on marginal cost of funds from April 1.
  • The lending rate based on marginal cost of funds is lower than base rate in some cases resulting in lower EMIs for borrowers. Most of the banks were deciding lending rates based on their average cost of funds.

Consumer Loans: An amount of money lent to an individual for personal, family, or household purposes. Consumer loans are monitored by government regulatory agencies for their compliance with consumer protection regulations such as the Truth in Lending Act.

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