The Reserve Bank of India (RBI) permitted banks to lend to telecom companies for the upcoming auction for spectrum, subject to conditions such as mortgaging the spectrum to the lenders. The RBI had laid down a few pre-conditions for financing of telecom firms for the auction of airwaves to protect banks against potential defaults.
The Union cabinet on 3 August 2012 approved a proposal that allows telecom companies bidding for airwaves to mortgage spectrum to raise funds from banks. The government set a reserve or base price of Rs 14000 crore for the auction.
That banks were revising their lending rates in specific maturities without lowering the base rate concerned the RBI. This activity of the banks resulted in the transmission of monetary policy signals by the central bank to be ineffective. The base rate is supposed to be responsive to changes in monetary conditions.
The RBI had formed a committee to assess the monetary policy transmission mechanism and also loan products offering fixed interest rate. The RBI want banks to enact changes in lending rates through their respective benchmark base rates for floating-rate loans.
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