As regards the cost of credit, as per extant guidelines, all loans up to Rs. 2 lakh are charged interest not exceeding PLR of the bank. The rates of interest on loans above Rs. 2 lakh have been deregulated and banks are given the freedom to fix the interest rates based on cost of funds, risk cost, transaction cost, etc.
Further, banks have been advised that with effect from July 1, 2010 the Base Rate system would replace the BPLR system whereby banks would determine their actual lending rates on loans and advances with reference to the Base Rate. Since the Base Rate would be the minimum rate for all commercial loans, banks could not resort to any lending below the Base Rate.