What changed
Previously, banks had a limited window until June 2011 to change their Base Rate methodology after the July 2010 switchover. Now, banks that commenced operations after July 2010 but have not completed one year as of September 2, 2013, can revise their methodology within a year of commencement. Banks commencing after this circular can also revise within a year. Any bank may approach RBI for permission to review its methodology after five years from finalization.
What it means for you
This gives banks more operational flexibility to adjust their lending rate calculation methods as they stabilize. For lenders, it reduces the risk of being locked into an unsuitable Base Rate methodology early on, allowing better alignment with their cost of funds and business strategy. However, the five-year review rule ensures long-term consistency unless RBI approves a change.
What you must do
- Review your bank's current Base Rate methodology and check if it falls under the new revision eligibility (new banks within one year of operations).
- If your bank is eligible, plan any methodology revision within the allowed one-year window from commencement of operations.
- For existing banks, note that any methodology change after five years requires prior RBI approval; prepare a justification if needed.
- Ensure all other Base Rate guidelines from the April 2010 circular remain unchanged and are complied with.
Who it affects
All Scheduled Commercial Banks (excluding RRBs), Banks that commenced operations after July 2010 and have not completed one year as of September 2, 2013, Banks that will commence operations after September 2, 2013
Can my bank change its Base Rate methodology now if it started operations in 2012?
Yes, if your bank commenced operations after July 2010 and has not completed one year of operations as of September 2, 2013, you can revise the methodology within one year from the date of commencement of business.
What if my bank wants to change its Base Rate methodology after five years?
You can approach the Reserve Bank for permission. The circular allows banks to review their methodology after five years from its finalization, subject to RBI approval.
Does this circular affect the existing Base Rate guidelines from 2010?
No, all other instructions from the April 2010 circular remain unchanged. Only the flexibility for methodology revision is updated as per this circular.