Economics • Banking & FinanceEasy
What does the term 'Base Rate' signify in the lending framework of Indian commercial banks?
A. The minimum interest rate below which banks are not permitted to lend to customers, except under specific RBI exemptions.✓ Correct Answer
B. The maximum interest rate charged on unsecured retail credit card loans.
C. The official policy rate announced by the RBI during monetary policy 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 as the minimum benchmark interest rate below which commercial banks were not permitted to lend to customers. It was subsequently superseded by the Marginal Cost of Funds based Lending Rate and External Benchmark Lending Rate regimes to improve monetary transmission. Banking rate structures are critical components of economic and financial awareness syllabi.
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