Annual Policy Statement for the Year 2009-10- 21st April 2009
Part II. Annual Statement on Developmental and Regulatory Policies for the Year 2009-10
II. Interest Rate Policy
(a) BPLR System: Review
87. Consequent to the Mid-Term Review of October 2005, the Indian Banks’ Association (IBA) issued guidelines for determination of benchmark prime lending rate (BPLR) by banks for appropriate pricing of credit. Over time, however, the system of BPLR has evolved in such a manner that it has lost its relevance as a meaningful reference rate as bulk of loans is advanced below BPLR. Furthermore, this impedes the smooth transmission of monetary signals and makes the loan pricing system non-transparent. It has, therefore, become necessary to review the current procedures and processes of pricing of credit. Accordingly, it is proposed:
• to constitute a Working Group to review the present BPLR system and suggest changes to make credit pricing more transparent. The Working Group would consult all the stakeholders and submit its report by end-August 2009.
(b) Payment of Interest on Savings Bank Account on a Daily Product Basis
88. At present, interest on savings bank accounts is calculated on the minimum balances held in the accounts during the period from the 10th day to the last day of each calendar month. Several banks have suggested that interest on savings bank accounts may be calculated either on the minimum balances in the deposit accounts during the period from the first to the last day of each calendar month or on a daily product basis. The matter was referred to the IBA, which was of the view that payment of interest on a daily product basis would be feasible only when computerisation in banks is completed. In view of the present satisfactory level of computerisation in commercial bank branches, it is proposed that:
• payment of interest on savings bank accounts by scheduled commercial banks (SCBs) would be calculated on a daily product basis with effect from April 1, 2010.
Modalities in this regard will be worked out in consultation with banks.
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