Further, RBI shall at the end of each quarter advice on the average of the base rates of the five largest commercial banks and shall determine the interest rates for the ensuing quarter. The modification is to take effect from 1 April 2014.
Currently, it seems that this amendment will not have an impact of the lending rates as the borrowing costs plus margin is anyway lower than the average base rate multiplier. Only if the base rate average was to be around 8% or lower in case of systematically important companies or 9% and lower in case of other NBFC-MFIs would this modification pass the benefit of the lower interest rates to the borrowers from larger NBFC-MFIs. However if the base rate was to drop down it is highly unlikely that theborrowing costs for the NBFC-MFIs will not fall down. Also what is critical to note is that the pricing becomes unreasonably high with the higher base rates. So in effect this amendment is not achieving much in terms of passing benefit to the borrowers on practical grounds.