TaxTMI 
TaxTMI 
Master Direction - Reserve Bank of India (Interest Rate on Advances) Directions, 2016
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....rections, unless the context otherwise requires, the terms herein shall bear the meanings assigned to them below - (i) Advance against own deposit means advance granted against Rupee/FCNR(B) term deposit and deposit stands in the name of: * the borrower, either singly or jointly * one of the partners of a partnership firm and advance is made to the said firm. * the proprietor of a proprietary concern and advance is made to such concern. * a ward whose guardian is competent to borrow on behalf of the ward and where the advance is made to the guardian of the ward in such capacity. (ii) Benchmark Prime Lending Rate (BPLR) means internal benchmark rate used to determine the interest rates on advances/loans sanctioned upto June 30, 2010. (iii) Benchmark rate means the reference rate used to determine the interest rates on loans. (iv) External benchmark rate means the reference rate published by an independent benchmark administrator. (v) Fixed rate loan means a loan on which the interest rate is fixed for the entire tenor of the loan. (vi) Floating rate loans means a loan on which interest rate does not remain fixed during the tenor of the loan. (vii) Internal benchmark r....
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....ch to the branch of acquiring bank shall be on mutually agreed terms of contract. Provided that the existing borrowers shall not be put into any disadvantage and the option of continuing with the existing bank or the acquiring bank. (b) The directions contained in section 4(a) above shall also be applicable to Rupee advances granted against FCNR(B) deposits to a third party or out of resources mobilized under the FCNR(B) scheme. 5. Penal Interest Banks shall formulate a Board approved policy for charging penal interest on advances which shall be fair and transparent. The rate of penal interest shall be decided after taking into account incentive to service the debt and due regard to genuine difficulties of customers. Provided that no penal interest shall be charged on advances mentioned in the circular RPCD.Plan.BC.15/04.09.01/2001-02 dated August 17, 2001, as amended from time to time. CHAPTER - III BENCHMARK 6. Internal Benchmark (a) Base Rate (i) All rupee loans sanctioned and credit limits renewed after July 1, 2010 shall be priced with reference to the Base Rate which will be the internal benchmark for such purposes (ii) Base Rate shall include all those elements of....
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....form part of this component. (vi) Tenor premium These costs arise from loan commitments with longer tenor. The change in tenor premium should not be borrower specific or loan class specific. In other words, the tenor premium will be uniform for all types of loans for a given residual tenor. (vii) Since MCLR will be a tenor linked benchmark, banks shall arrive at the MCLR of a particular maturity by adding the corresponding tenor premium to the sum of Marginal cost of funds, Negative carry on account of CRR and Operating costs. (viii) Accordingly, banks shall publish the internal benchmark for the following maturities: * overnight MCLR, * one-month MCLR, * three-month MCLR, * six month MCLR, * One year MCLR. In addition to the above, banks shall have the option of publishing MCLR of any other longer maturity. (ix) Review of MCLR (a) Banks shall review and publish their Marginal Cost of Funds based Lending Rate (MCLR) of different maturities every month on a pre-announced date with the approval of the Board or any other committee to which powers have been delegated. (b) Banks which do not have adequate systems to carry out the review of MCLR on a monthly basis, shal....
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....charged to an existing borrower shall not be increased except on account of deterioration in the credit risk profile of the customer. Any such decision regarding change in spread on account of change in credit risk profile shall be supported by a full-fledged risk profile review of the customer. Provided that the stipulation contained in sub-section 8(d) above shall not be applicable to loans under consortium / multiple banking arrangements. 9. Reset of interest rates under MCLR system (a) Banks shall, at their option specify interest reset dates on their floating rate loans. Banks will have the option to offer loans with reset dates linked either to the date of sanction of the loan/credit limits or to the date of review of MCLR. (b) The Marginal Cost of Funds based Lending Rate (MCLR) prevailing on the day the loan is sanctioned shall be applicable till the next reset date, irrespective of the changes in the benchmark during the interim. (c) The periodicity of reset shall be one year or lower. The exact periodicity of reset shall form part of the terms of the loan contract. 10. Transition to Base Rate from BPLR Existing loans based on the BPLR system shall run till their ma....
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....ng categories of loans shall be priced without being linked to Base rate/MCLR as the benchmark for determining interest rate: (i) Advances to banks' depositors against their own deposits. (ii) Advances to banks' own employees including retired employees. (iii) Advances granted to the Chief Executive Officer / Whole Time Directors. (iv) Loans linked to a market determined external benchmark. Provided that floating rate loans based on external benchmark sanctioned before April 01, 2016 shall be equal to or above the Base Rate at the time of sanction or renewal. (v) Fixed rate loans granted by banks. However, in case of hybrid loans where the interest rates are partly fixed and partly floating, interest rate on the floating portion shall not be exempted from MCLR guidelines. Provided that fixed rate loans sanctioned before April 01, 2016 shall not be below the Base Rate at the time of sanction or renewal. Annex (see section 6(b) under Chapter III) Sl Source of funds (excluding equity) Rates offered on deposits on the date of review/ rates at which funds raised (1) Balance outstanding as on the previous day of review as a percentage of total funds (other than equity) (....
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....rn on networth Amount of common equity Tier 1 capital required to be maintained for Risk Weighted Assets as per extant capital adequacy norms shall be included for computing marginal cost of funds. Since currently, the common equity Tier 1 capital is (5.5% +2.5%) 8% of RWA, the weightage given for this component in the marginal cost of funds will be 8%. In case of newly set up banks (either domestic or foreign banks operating as branches in India) where lending operations are mainly financed by capital, the weightage for this component may be higher ie in proportion to the extent of capital deployed for lending. This dispensation will be available for a period of three years from the date of commencing operations. The cost of equity will be the minimum desired rate of return on equity computed as a mark-up over the risk free rate. Banks could follow any pricing model such as Capital Asset Pricing Model (CAPM) to arrive at the cost of capital. This rate can be reviewed annually. Marginal cost of funds = 92% x Marginal cost of borrowings + 8% x Return on networth CHAPTER - VII REPEAL AND OTHER PROVISIONS 14. With the issue of these directions, the instructions / guidelines con....
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.... 25 DBOD No.Dir.BC.8/13.07.00/2002-03 26.07.2002 Charging of Interest at Monthly Rests - Consolidated Instructions 26 DBOD.No.Dir.BC.19/13.07.01/2002-03 19.08.2002 Zero percent Interest Finance Schemes for Consumer Durables 27 DBOD.No.Dir.BC.25/13.03.00/2002-03 19.09.2002 Charging of Interest at Monthly Rests - Agricultural Advances 28 IECD.No.18/04.02.01/2002-03 30.04.2003 Rupee Export Credit Interest Rates 29 DBOD.No.BC.103/13.07.01/2003 30.04.2003 Interest Rates on Advances 30 DBOD.No.Dir.BC.103A/13.03.00/2002-03 30.04.2003 Interest Rates on Advances - Prime Lending Rate and Spreads 31 DBOD.No.Dir.BC.10/13.03.00/2003-04 14.08.2003 Interest Rates on Advances 32 DBOD.No.Dir.BC.38/13.03.00/2003-04 21.10.2003 Interest Rates on Advances - Prime Lending Rate and Spreads 33 DBOD.No.Dir.BC.39/13.03.00/2003-04 21.10.2003 Interest Rates on Advances - Prime Lending Rate and Spreads 34 DBOD.No.81/13.07.01/2003-04 24.04.2004 Interest Rates on Advances 35 IECD.No.10/04.02.01/2003-04 24.04.2004 Rupee Export Credit Interest Rates 36 IECD.No.13/04.02.01/2003-04 18.05.2004 Export Credit Interest Rates for Gold Card Holder Exporters 37 DBOD.No.BC.85....