The Reserve Bank of India has permitted banks to finance telecom firms companies bidding to the spectrum with certain conditions.

According to a top Reserve Bank Deputy governor Anand Sinha, these conditions have been put as precaution to protect banks against potential defaults.“

Essentially, it is valuation related issues, the fact that it (spectrum) should be available to the banks in case there is a default," he said.

The cabinet last week gave nod to a proposal to allow telecom companies bidding for airwaves to mortgage spectrum to raise funds from banks.

Sinha said the RBI would want banks to enact changes in lending rates through their respective benchmark base rates for floating-rate loans.

An important fallout of this is that the transmission of monetary policy signals by the central bank then tend to be ineffective. The base rate is supposed to be responsive to changes in monetary conditions, Sinha said.

He said that RBI would certainly want the responses to be through the base rate. But, a committee is looking into these aspects.