The Indian Banks' Association is working on a formula for a benchmark prime lending rate, on the basis of which banks can set their own rates.

The formula was expected to be ready in a few days, V Leeladhar, chairman of the association, told reporters in Mumbai on Monday.

The credit policy review earlier in the day had said the association "should advise banks on the benchmark prime lending rate, keeping in view the operational guidelines". A sub-group has been formed in the association for evolving the formula.

Leeladhar and other bankers present at a meeting with RBI Governor YV Reddy earlier in the day made it clear that they were not opposed to the concept of a benchmark prime lending rate, but "rather in putting it into operation".

"The formula will just give the broad guidelines to banks, which can work out their benchmark rates based on individual asset-liability, cost of deposits and other parameters," Dena Bank chairman A G Joshi said. The banks will then make the benchmark public.

H N Sinor, chief executive of the Indian Banks' Association, said the main issue was transparency and ease of action, which was expected to be addressed with the establishment of a benchmark prime lending rate.

Explaining the difficulty of having a uniform prime lending rate, Joshi said all banks were not the same in terms of reach, coverage, cost of funds, overhead costs and earnings.

While the RBI did not announce rate cuts, bankers said each bank would be taking stock of the situation in order to explore the possibility of cutting rates.

There were reports that some banks could be cutting rates, but Leeladhar said the decision would be taken by each bank according to its assessment of the situation.