Press Information Bureau

Government of India

Ministry of Finance

07-December-2012 18:33 IST

Reserve Bank of India had deregulated the interest rates on advances sanctioned by Scheduled Commercial Banks, with effect from October 18, 1994 and these interest rates were determined by bank themselves with the approval of their Boards, subject to Benchmark Prime Lending Rate (BPLR) and spread guidelines.

The above guidelines based on the BPLR system have been replaced by new guidelines on the Base Rate System issued vide circular dated April 9, 2010, which have come into force with effect from July 1, 2010. In terms of the new guidelines, banks determine their actual lending rate on loans and advances with reference to the Base Rate. All categories of loans, except specified exemptions, are priced only with reference to the Base Rate, which is announced by banks after seeking approval from their respective Boards. The Banks are not permitted to resort to any lending below the Base Rate.

This was stated by the Minister of State for Finance, Shri Namo Narian Meena in a written reply to a question in the Lok Sabha today.

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DSM/RS/ka

 

Base Rate System: banks must price loans with reference to declared Base Rate and may not lend below it. Deregulation required banks to determine and announce lending rates with Board approval under the Base Rate System; banks must price loans with reference to the declared Base Rate and are prohibited from granting loans below that Base Rate, subject only to specified exemptions.