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The provisions of Section 372A(3) do not permit “any loan to any body corporate to be made at a rate of interest lower than the prevailing bank rate, being standard rate made public u/s. 49 of the Reserve Bank of lndia Act, 1934 (2 of L934).” Through this clarification the Government clarifies that there is no violation of Section 372A(3) by investment in these Bonds as the effective yield ( effective rate of return) on tax free bonds is greater than the yield of the prevailing Bank rate.
