Economics • Banking & FinanceMedium
What does the term 'Base Rate' signify in the Indian lending landscape before the adoption of MCLR?
A. The maximum interest rate charged by commercial banks to prime corporate borrowers
B. The minimum interest rate below which banks were not permitted to lend to customers✓ Correct Answer
C. The official policy rate announced by the Reserve Bank of India during monetary reviews
D. The benchmark rate used exclusively for foreign currency non-resident deposits
💡 Solution & Explanation
The Base Rate system was introduced by the Reserve Bank of India in 2010 as the minimum benchmark interest rate below which commercial banks were strictly prohibited from lending. Incorrect choices confuse this with maximum prime lending limits, repo policy benchmarks, or specialized deposit rates.
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