in the utilisation of bank credit. furthermore, the reserve bank relaxed the requirement of plr being the floor rate for loans above rs. 2 lakh. thus, in april 2001, commercial banks were allowed to lend at sub - plr rates for loans above rs. 2 lakh. however, the divergence in plrs and the widening of spreads for borrowers continued to persist. the plrs turned out to be rigid and inflexible in relation to the overall direction of interest rates in the economy. in order to address these issues, a bplr system was introduced in april 2003. 5. however, the bplr system evolved in a manner that did not meet the objectives. competition in an environment of excess liquidity had forced the pricing of a significant proportion of loans far out of alignment with bplrs undermining its role as a reference rate. furthermore, there was a growing public perception of under - pricing of credit for corporates and over - pricing of credit to agriculture as well as small and medium enterprises. several requests were received by the reserve bank from banks suggesting a review of the bplr system. 6. the lack of transparency in the bplr system also hindered transmission of monetary policy signals. in view of the concerns pertaining to the shortcomings in the bplr system raised by the public and those recognised by the reserve bank, the annual policy statement for 2009 – 10 announced the constitution of a working group on bplr to review the bplr system and suggest changes to make credit pricing more transparent. on the basis of the recommendations of the working group ( chairman : deepak mohanty ) and after taking into account the views of various stakeholders and discussions with banks final guidelines on the base rate system were announced on april 9, 2010. ii. the base rate system 7. the base rate system will replace the bplr system with effect from 1st july 2010. base rate shall include all those elements of the lending rates that are common across all categories of borrowers. banks may choose any benchmark to arrive at the base rate for a specific tenor that may be disclosed transparently. banks are free to use any other methodology, provided it is consistent, and is made available for supervisory review. banks will determine their actual lending rates on loans with reference to the base rate and by including such other customer specific charges as considered appropriate. 8. with the introduction of the base rate system, all categories of loans will be priced only with reference to the

has been on a limited scale up to now. at the end of 2002 it amounted to €103 billion, or less than 20 per cent of the gdp of the countries of the area. a quarter of this investment was by eu businesses, 2 per cent by italian ones. firms from mediterranean countries play only a small role in italy, almost exclusively in the energy and media sectors ; there are a few cases of equity interests in italian banks and industrial companies. closer links exist with the productive sectors of other european countries, but they are still of marginal importance. the openness of the mediterranean countries ’ financial systems, centred on banks, is limited. in many countries banks are still largely owned by the state. the development of the financial system is hindered by shortcomings in the legal framework and the governance rules for firms and markets. the key feature of the euro - mediterranean partnership is a new strategic approach on the part of the european union to the problem of these countries ’ development. no longer are they seen as single entities to trade with and provide with technical assistance through bilateral agreements, but as an area in which to promote the start of a process of faster growth through institutional and economic reforms and the coordination of private and public investment. to this end there needs to be a continuing financial commitment on the part of the european institutions but also more intense contacts and exchanges of experience between the institutions and operators of the mediterranean countries on the one hand and their european counterparts on the other. the decision taken in naples last december to establish a euro - mediterranean foundation can reinforce the links between the countries involved through training programmes and initiatives aimed at fostering mutual understanding and a dialogue between cultures. in the last few years the drive to bring about a radical renewal of the mediterranean economies has lost momentum, partly as a consequence of the prolonged stagnation of the world economy. progress has been made, albeit to a varying extent, in all the mediterranean countries in terms of institutional reforms, market building, liberalization programmes and reducing the role of the state in the economy ; coordination of the action aimed at the integrated development of the area is still lacking. there are risks of marginalization with respect to a world economy that is changing rapidly. this seminar, organized by the european central bank and the bank of italy, can be a stimulus to renew the initiative. in three working sessions, reserved to the central banks, it will address a series of problems regarding economic integration, exchange rate management, and banking and financial systems. it