Question

The cost of bank credit is determined in India by a system of benchmark prime lending rate which is charged by a bank to the most creditworthy customers, and all bank loans are given at a rate equal to or higher than the benchmark prime lending rate. What determines this rate of interest?

• A. It is fixed by the Reserve Bank of India.
• B. It is determined by the Ministry of Finance.
• C. It is determined by the bank concerned.
• D. It is a competitive rate determined by market forces of supply and demand for credit.

Answer 1

The correct option is C It is determined by the bank concerned.

The benchmark prime lending rate is determined by the bank which is giving loan to its most creditworthy customers and they decide the rate of this loan according to which all other rates are fixed.