Base rate is the minimum interest rate of a bank below which it is not viable to lend.It replaces the benchmark prime lending rate (BPLR) ,the interest rate which commercial banks charged their most credit worthy customer.
A working group was constituted under the chairmanship of Shri Deepak Mohanty to review the benchmark prime lending rate. It was observed that the benchmark prime lending rate, which was introduced in 2003, had failed in its objective. The banks were lending below BPLR rates due to competitive pressures. Hence a need was felt for transition to a more transparent and effective interest rate mechanism.
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