Interest Base Rate – much needed or undue interference

It is a welcome measure.

Earlier in Prime Lending Rate regime, the Banks had freedom to lend either below or above PLR. Now, under base rate regime, the Banks can not lend below base rate. Borrower can compare the rate that is being charged to him with the base rate, and know how bank rates his credit worthiness. Absolute transparency.

The question is, is Banking a business? Is base rate simply declaration of its cost of funds and minimum profits? Since banking is a business deals with risk always, is it not unfair to prevent it to play safe? Cant it lend funds below its cost so that it can lend some of its funds in high risk ventures? Does not it have enough flexibility to construct a portfolio which will have low risk investments to high risk?

Finally we should also understand that it is market which determines the rate of interest. Then economy, inflation so on so forth. Further, if one bank announces, then all others will follow the suit. Will it not lead to under cuts in times of insufficient credit off take?Does not it amount to interfere with one's commercial decisions?

We firmly feel that any move which will interfere with the business will ultimately fail. One should understand now that west is looking at the east and not the other way round. We need to assume leadership and not to have the mindset of the follower.