BANKING AFFAIRS

Detailed explanation-1: -On 9th April 2010, the Reserve Bank of India (RBI) introduced the Base Rate system, which was effective from 1st July 2010. According to this new system, banks cannot lend below the base rate set by the RBI.

Detailed explanation-2: -7. The base rate system will replace the BPLR system with effect from 1st July 2010. Base rate shall include all those elements of the lending rates that are common across all categories of borrowers. Banks may choose any benchmark to arrive at the base rate for a specific tenor that may be disclosed transparently.

Detailed explanation-3: -Introduced in June 2010, base rate is simply regarded as the standard lending rate offered by commercial banks. It is decided to increase transparency and to ensure that banks pass the benefit of lower interest rates to borrowers.

Detailed explanation-4: -To usher in transparency for making a better assessment of transmission, the Reserve Bank brought forth the base rate system in July 2010 in place of the BPLR system.

Detailed explanation-5: -The base rate system, with a link to the banks’ cost of funds, was expected to facilitate better pricing of loans, enhance transparency in lending rates and improve the assessment of the transmission of monetary policy.