The apex bank has also said that the relaxed asset classification norms for banks to tide over cyclical problems will come into effect from the year ended March 31, 1999.

The easing of rates effectively means that the rates on advances shall be higher than the interest rates paid on respective deposits.

This move is likely to benefit banks which have been collecting deposit at higher rate but giving advances against such deposits at rates with reference to the banks' PLR. At present, banks cannot charge interest on advances against deposits at rate exceeding the PLR.

In another move to provide banks especially the public sector banks more autonomy in order to become more fleet footed the RBI has said that the board of directors of thebanks can authorise the Asset Liability Management Committee to fix interest rates on deposits and advances. This will enable the banks to respond promptly to changes in interest rates environment.With regard to the removal of the ceiling on rates on advances against deposits, an RBI directive issued yesterday said," when an advance is granted against a term deposits the interest rates chargeable shall be equal to the bank's PLR or less. However in cases where deposits rates are equal to or more than PLR or less than one percentage point below PLR, banks will have the freedom to charge suitable rates of interest on advances against such deposits without reference to ceiling of PLR,".

"This will benefit banks as there was a position where banks had got deposits at 16 per cent lending advances against these deposits were taking place at 12 per cent. This is an anamoly which the RBI as now removed", deputy general manager at Bank of Baroda, KC Chakraborty, said.

This will be applicable both for domestic andnon resident deposits.In a simultaneous move the RBI has decided that it will provide banks with freedom to operate different PLR for different maturities provided the transparency and uniformity of treatment originally envisaged continues. According to the RBI, currently, the PLR system with a spread between PLR and the maximum lending rate has served the purpose of ensuring transparency and objectivity.

The RBI has also decided to permit banks to offer fixed rates loans for project finance subject to asset liability management guidelines. This is in response to industry especially those requiring project finance requesting for fixity of interest rates on term loans.