RBI's Base Rate Triggers

The decision to implement base rates is well thought idea to de-risk the banking sector. Only when the money i invest in the bank is secure, I feel compelled to deposit my savings for a minimal returns. But once these banks start lending our savings to low credit rating companies in greed for high returns, we tend to push ourselves into one big crisis similar to what happened in US in 2008. According to the current BPLR system, banks have a maximum limit up to which they can lend the money, and in most cases to wither the competition , each bank tends to provide loans to companies and institutions with long history at subsidized rates to survive. This often creates a rift in the basic idea of BPLR and more often affects the common man who only takes loans less then Rs10 Lakhs but end up paying higher interest rates.

While the industry benefits with old system, the ordinary Indian bears the brunt of rising interest rates whittling down his savings. With rising inflation, and petrol prices this base rate policy comes as a relief to most people as banks can lend money at one standard interest rate to all customers without any prejudice. Exceptions to farming , restructuring and export sector is necessary to keep the country's success growth intact. This move was welcomed by the industry positively and hope banks follow this in principle to keep the inflation under control. RBI has signaled no change in monetary policy until end of July even though the double digit inflation figures last month shows Govt willingness to not intervene amidst the fuel hike.

Even if RBI sucks the money from the system by rising the CRR and Repo Rates, the domestic growth is so strong and this wouldn't have any impact on the inflation numbers. What i understand by inflation is most part of it is depended on the wholesale price index(WPI) which is affected by fuel prices. So with sudden increase in petrol and diesel, WPI is bound to increase, hence cost of living increases which makes the common man the end loser.Lets discuss, some other time and lastly the SBI's base rate of 7.5% is a positive step, and hope the private sector bring down its rates to stay competitive in the sector.