| Which of the following statements about base rate is/are correct? |
| 1. Introduced in 2010, it replaced benchmark prime lending rate (BPLR). |
| 2. It brings more transparency in lending system. |
| 3. Bank can't lend any of its customers below this lending rate with exception to high net worth individuals. Select the correct answer using the codes given below: |
A) 1 and 2 only
B) 2 only
C) 3 only
D) 1, 2 and 3
Correct Answer: A
Solution :
[a] Base rate was introduced in the Indian banking system on 1 July after a directive by the Reserve Bank of India. The base rate was designed to replace the flawed benchmark prime lending rate (BPLR), which was introduced in 2003 to price bank loans on the actual cost of funds. Now, banks will not be allowed to lend below this rate. Under the new rule, banks were free to use any method to calculate their base rates (the RBI did provide an 'illustrative' formula), provided the RBI found it consistent. Banks were also directed to announce their base rates on their Websites, in keeping with the objective of making lending rates more transparent. All banks operating in India announced their base rates on 1 July. Most public sector banks kept their rates at 8%, while most private banks, a few government-owned banks (such as SBI) and foreign banks kept their base rates at 7.5%.
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