India central bank: banks must move to marginal cost for new base lending rate

MUMBAI: India's central bank has asked banks to calculate their base lending rates on the basis of the marginal cost of funds instead of the current practice of average cost and to implement the new rules by April 1, 2016.

The Reserve Bank of India wants banks' lending rates to be sensitive to policy rates, it said in a circular on draft base rate guidelines on Tuesday.

Indian banks have been reluctant to lower their base lending rates, citing high cost of funds, despite the three policy rate cuts by the RBI.

The RBI also urged banks to move to external financial benchmarks for pricing their deposits and loans in the medium term.