act as a guideline for Bank to fix interest rate
Answers
Banks are private businesses with the right to set and change interest rates as they please. However, these rate changes don't come out of nowhere the interest rate on your savings account usually fluctuates for three different reasons: Inflation. Interest rates tend to move in the same direction as inflation.
Answer:
Reserve Bank of India has laid down several guidelines for banks across India to fix interest rates. Some of the key guidelines are explained below.
Explanation:
i) A comprehensive policy needs to be designed to determine interest rates.
ii) The policy and any changes to be made in it needs to be scrutinized by the Board of Directors or any other committee with delegated power.
iii) Terms of the loan contract need to mention the reference benchmark interest rate for pricing the loan.
iv) Banks are given the freedom to present advances on all categories wrt fixed or floating interest rates.
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