Punjab National Bank today fixed the rate at 8 per cent, below which the bank cannot lend to its customers.
The base rate, which will replace the existing Benchmark Prime Lending Rate (BPLR) of PNB, is 0.5 per cent higher than what is being offered by the country's largest lender, SBI.
The base rate of PNB is 3 per cent lower than its existing BPLR of 11 per cent.
In a statement, PNB said the base rate was arrived at by taking the average cost of deposits of the last quarter as the benchmark.
Earlier in the day, SBI fixed its base rate at 7.5 per cent, while its associate, State Bank of Travancore, fixed the base rate at 7.75 per cent.
Under the new lending system, borrowers will be charged interest rates over the base rate depending on their credit profile. The system, however, will not apply to concessional loans for agriculture, exports and other specified sectors.
Last week, the RBI sent a letter to the Indian Banks Association clarifying that the base rate norms will not affect the operations of the government's interest rate subvention schemes for export and agriculture loans.
The RBI assured that if interest earned by the bank, including subvention, falls below the base rate, it will not be treated as a violation of norms. Also, the rules will be relaxed for restructured loans, where interest rates can be below the base rate, it had said.
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