To increases transparency in lending, the Reserve Bank of India has enforced an interest rate below which each bank cannot lend.
According to the Economic Times, dozens of Indian banks will now stop lending below 7%, even if it is top-rated company. The base rates range between 7% and 8.75%, and can differ among banks since costs vary.
The base rate, the floor below which a bank cannot lend even to its top-most client, is arrived after factoring in a bank’s cost of funds and other operating expenses, says the Times.
Effective today, the base rate replaces the much-abused benchmark prime lending rate (PLR).