Q. With reference to the Base Rate system in Indian banking, consider the following statements:
1.Base Rate is the minimum interest rate below which scheduled commercial banks cannot lend, except in a few specified cases.
2.The Base Rate system was introduced to make lending rates more transparent and to improve the transmission of RBI’s policy rates.
3.Under the Base Rate system, banks can still offer loans below this rate for all borrowers if the loan amount exceeds ₹2 lakh.
Which of the statements given above is/are correct?
Quarterly-SFG-Jan-to-March
Red Book

[A] 1 and 2 only

[B] 2 and 3 only

[C] 1 and 3 only

[D] 1, 2 and 3

Answer: A
Notes:

Explanation:

  • The Base Rate is the floor rate below which banks cannot lend, except for DRI loans, staff loans, and loans against own deposits.
  • It was introduced in July 2010 to replace the BPLR system and to enhance transparency and improve monetary policy transmission.
  • Under the Base Rate system, lending below base rate is not allowed regardless of the loan amount. The earlier BPLR provision of lending below the benchmark for loans above ₹2 lakh has been withdrawn.

Source- 11th NCERT: Economics: Indian Economic Development and TMH Indian Economy by Ramesh Singh

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