Base rate is the standard interest rate to be followed by commercial banks in India since 2010. Base rate should be declared by every bank and they are changing it in accordance with the change in the economy and the policy signals (Repo) by the RBI.
An important part of base rate reform is that it has made the banks not to give loans below the stipulated base rate except to the exempted categories.
Base rate is determined on the bases of four factors: cost for the funds, operating expenses, minimum rate of return, and cost for the CRR.
From 2016 onwards, the RBI shifted to MCLR regime as standard interest rate regime for commercial banks and provided fresh guidelines. Hence base rate’s relevance has been declined since the launch of MCLR.
