BANGALORE: To ensure effective transmission of its policy rate decisions by banks, RBI today proposed a uniform methodology for calculation of their base lending rates on the basis of marginal cost of funds.

Many banks currently follow average cost of funds or ‘blended cost of funds (liabilities) method’ for calculating the base rate, while a few already take into account the proposed measure of ‘marginal cost of funds’.

“For monetary transmission to occur, lending rates have to be sensitive to the policy rate,” said draft guidelines on

‘Transmission of Monetary Policy Rates to Banks’ Lending Rates Base Rate Guidelines’.

As per the draft, components of Base Rate will include cost of funds, negative carry on CRR/SLR, un-allocable overhead costs and average return on networth.

“The marginal cost of funds should be used for computing the cost of funds. The marginal cost should be arrived at by taking into consideration all sources of fund other than equity,” it said.

Also, cost of deposits should be calculated using the latest interest rate/card rate payable on current and savings deposits and the term deposits of various maturities.

“Cost of borrowings should be arrived at using the average rates at which funds were raised in the last one month preceding the date of review. Each of these rates should be weighted by the proportionate balance outstanding on the date of review,” the draft said.

In spite of RBI Governor Raghuram Rajan coming down heavily on banks for not passing on the entire benefit of its 75 bps rate cuts since January 15, the lenders have reduced base rates only by about 30 bps, citing higher cost of funds.

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