BASE RATE -- FOR INTERVIEWS

Definition of Base Rate

•              Base rate is the minimum rate, below which banks are not permitted to lend, barring certain exceptions.

•              It is the minimum rate that the banks are allowed to charge from their customers. RBI rules stipulate that no banks are allowed to offer a rate of interest that is less than the base rate to any of their customers.

•              Base rate has replaced Benchmark Prime Lending Rate (BPLR) on July 01, 2010 on the recommendations made by a RBI committee.

•              Base rate is much more transparent and released once in three months by RBI. Banks cannot lend below the base rate.    

•              As per RBI Guidelines , the following categories of loans could be priced without reference to the Base Rate :

a. Differential Rate of Interest (DRI) Advances b. Loans against their own deposits c. Loans to employees of Banks.

Does RBI fixes Base Rate ? Who fixes Base Rate ?

•              RBI does not fix the Base Rate. It has issued broad guidelines to Banks as to how they should arrive at the Base Rate. Thus, individual Banks fixes their own Base Rate depending on various internal factors of the banks.                 Banks are required to review the Base Rate atleast once every quarter.