The implication of this is that the decline in credit flow, as banks have asserted, was due more to a decline in credit demand from the private sector rather than any increased risk aversion on the part of the banks. 34. It should be recognised that the clogs in monetary transmission in India are possibly exaggerated because of the current system of loan pricing.
Banks are required to declare a benchmark prime lending rate (BPLR) but they enjoy the freedom to lend at rates below their BPLR. Over time, sub-BPLR lending has become a rule rather than an exception. Currently about two thirds of bank lending takes place at rates below the BPLR.