Base Rate

Base rate is the minimum rate set by the Reserve Bank of India below which banks are not allowed to lend to its customers.

Base Rate-It was introduced in the Indian banking system on 1 July 2010.

Base rate is decided in order to enhance transparency in the credit market and ensure that banks pass on the lower cost of fund to their customers.

The base rate was designed to replace the flawed benchmark prime lending rate (BPLR), which was introduced in 2003 to price bank loans on the actual cost of funds.

All categories of loans are priced with reference to the Base Rate only, except the—

[1] Differential rate of Interest (DRI) loans

[2] loans to banks’ own employees, and

[3] loans to banks’ depositors against their own deposits.