Economics • Banking & FinanceEasy
What does the term 'Base Rate' system, formerly used by Indian commercial banks, signify?
A. The absolute minimum interest rate below which banks were generally not permitted to lend to their customers.✓ Correct Answer
B. The benchmark interest rate set exclusively by the Ministry of Finance for housing loans.
C. The maximum interest rate charged on microfinance loans under government-sponsored schemes.
D. The rate at which the Reserve Bank of India rediscounts eligible commercial bills of exchange.
💡 Solution & Explanation
The Base Rate system was established by the Reserve Bank of India in 2010 to serve as the minimum benchmark interest rate below which commercial banks were prohibited from lending to any borrower, enhancing pricing transparency. It was subsequently superseded by the Marginal Cost of Funds based Lending Rate methodology in 2016. Such monetary policy shifts are staples of banking awareness tests.
More Economics Banking & Finance questions
- Under the regulatory framework of the Reserve Bank of India, what does the term 'Tier-2 Capital' primarily…
- What is the primary function of the 'Credit Information Companies (CICs)' operating within the framework of…
- What does the term 'G-Sec Yield' signify in financial markets?
- Which apex cooperative financial institution operates within Sikkim to provide vital credit support and…
- What is the primary objective of the 'Securitisation and Reconstruction of Financial Assets and Enforcement…