Base Rate

Base Rate is introduced in Indian banking system wef 01.07.2010. The base rate relates to interest charged by the banks on their advances. Before introduction of base rates Indian Banks used to give loans to corporates at very low rates. The amounts involved were also huge. Hence RBI felt the need to floor the rate charged by banks hence base rates were introduced. The base rates relates to the minimum rate that the bank can charge on any loan to anyone. They cannot lend below that rate. The banks were given freedom to fix their base rate based on their cost of funds, liquidity position etc.