Monetary policy and its Transmission

Objectives of RBI:

• to regulate the issue of Bank notes and 
• the keeping of reserves with a view to securing monetary stability in India and
• generally to operate the currency and credit system of the country to its advantage

FAQ on Baste Rate

What is the base rate (BR)? 
It is the minimum rate of interest that a bank is allowed to charge from its customers. Unless mandated by the government, RBI rule stipulates that no bank can offer loans at a rate lower than BR to any of its customers.

CAT -10 Canara Bank PO General Awareness for Bank exams

1. What is the repo rate currently?
a) 5%
b) 6%
c) 5.25%
d) 3.75%

Concept of Base Rate

A RBI working group chaired by Sh. Deepak Mohanthy submitted “Report of the Working Group on Benchmark Prime Lending Rate (BPLR)” in October 2009. It was directed to review the BPLR system and suggest changes to make credit pricing more transparent. In the mean time, Committee on financial reforms chaired by Shri Raghuram G. Rajan, had also deliberated on the issue of interest rate ceilings for small loans. They concluded that bulk of the loan is disbursed at rates below the PLR — popularly known as sub-PLR. Nearly 70% of the loan is at sub-PLR rates. On account of competitive pressures, banks were lending part of their portfolio at rates which did not make much commercial sense. In short, the present lending system is suffering from the lack of transparency.