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There has been a greater convergence amongst banks in fixing the Base Rate over time vis-a-vis under the earlier Benchmark Prime Lending Rate (BPLR) system.
As a result, the Base Rate system is found to be more transparent and more responsive to hikes in policy rates compared with the BPLR system, said the Reserve Bank of India's Annual Report 2010-11.
This is reflected in the average increase in the Base Rate by public and private sector banks since July 2010.
It is seen that the pace of increase in Base Rate in response to increase in policy rate was initially slower but picked up momentum during December 2010-February 2011.
Also, the number of days taken by these banks to raise their Base Rates went down during this period. However, following gradual moderation in the growth of non-food credit, the pace of increase in Base Rate relative to that of the repo rate slowed down from February 2011 onwards, while the number of days taken to raise the Base Rate also increased, RBI said.
Banks have also become more responsive to increase in policy rates by the RBI, post the Base Rates.
As a result, the assessment of the transmission of monetary policy has strengthened under the new system, from that under the BPLR system, the RBI said.
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