Artha Vijnana: Journal of The Gokhale Institute of Politics and Economics

Shiva Reddy Kalluru ¹, D. Sreenivasa Chary ²

Affiliations
1 Gokhale Institute of Politics and Economics, Shivajinagar, Pune 411004, IN
2 ICFAI Business School (IBS), Hyderabad 501504, IN

Abstract

This paper analyses the Base rate structure which is followed by commercial banks in India from July 2010 as per the directions of RBI. It makes a comparison of the Benchmark Prime Lending Rate (BPLR) regime and the new Base rate regime and the related pros and cons of both the bases of lending rate mechanisms. As the BPLR system fell short of its original objective of bringing transparency in lending rates, RBI introduced the Base rate system. The latter is aimed at enhancing transparency in lending rates of banks and proper transmission of monetary policy. The study computes the Base rates for a sample of 68 banks as per the formula given by RBI and compares them with Base rates declared by the respective banks. The study reveals that banks are setting their Base rates below their Break-Even Base rate to attract high value business to counter stiff competition in the banking industry.

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Shiva Reddy Kalluru ¹

Affiliations
1 Gokhale Institute of Politics and Economics, Pune 411004, IN

Abstract

Deregulation of financial markets provides both opportunities and challenges for financial institutions. Financial sector reforms in India induced competition in it which led to innovations and greater uniformity in services offered by them. This is the broad theme of the book.

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