Which among the following is defined as the minimum interest rate of a bank below which it cannot lend, except in some cases allowed by the RBI?

Correct option is A

Correct Answer: (a) Bank Rate
Explanation
· Bank Rate is defined as the minimum rate of interest at which the Reserve Bank of India (RBI) provides long-term funds to commercial banks.
· Banks are not allowed to lend below the Bank Rate, except in specific cases permitted by the RBI, making it the statutory floor rate for lending.
· It reflects the basic cost of funds for banks and influences overall interest rate structure.
Information Booster
· Bank Rate is prescribed under the RBI Act, 1934.
· It is mainly used for long-term credit control, unlike repo rate which is short-term.
· Changes in Bank Rate signal the RBI’s long-term monetary policy stance.
· Penal interest on banks is often linked to the Bank Rate.
Additional Knowledge
· Repo Rate (b): Short-term rate under Liquidity Adjustment Facility; policy rate but not the statutory minimum lending rate.
· Reverse Repo Rate (c): Rate at which RBI absorbs liquidity from banks; does not affect minimum lending limits.
· Call Money Rate (d): Overnight interbank borrowing rate; purely market-driven and unrelated to customer lending rates.