Module: | KYC, NPAs, Advances & Investment Valuations
Q223: Consider the following statements regarding pricing of floating rate advances:
Assertion (A) - When floating rate advances are linked to an internal benchmark rate, banks determine the actual lending rate by adding components of spread to the internal benchmark.
Reason (R) - Banks are prohibited from offering advances on floating interest rates and must strictly use fixed rates for all term loans.
Reason (R) - Banks are prohibited from offering advances on floating interest rates and must strictly use fixed rates for all term loans.
✅ Correct Answer: C
Assertion A is correct: When floating rate advances are linked to an internal benchmark, banks determine the actual rate by adding spread components.
Reason R is false: The Directions explicitly state that banks shall have the freedom to offer all categories of advances on fixed or floating interest rates.
Reason R is false: The Directions explicitly state that banks shall have the freedom to offer all categories of advances on fixed or floating interest rates.