The concept of base rate was introduced on July 1, 2010, at all banks across India. Before the base rate system, BPLR (Benchmark Prime Lending Rate) was employed. However, with the implementation of base rate system, the credit pricing became more transparent. Here is an article that explains in-depth about the base rate and other related information, which you might require for assistance to comprehend better.
The base rate is the minimum rate of interest that is set by a country’s central bank for lending a loan. This rate is usually taken as the standard interest rate by all the banks functioning in that country. Once the base rate is announced by the central bank, no bank is permitted to offer any type of loan to its customers at a rate that is lower than the base rate that has been set by the central bank of a nation.
The credit market in the earlier days was not that transparent. There used to be some segments that were hidden or closed. There was no clear information how much interest rate a bank actually charged for a loan.
To bring transparency to the credit field and to make sure that the banks charge a lower interest rate, the RBI implemented the notion of base rate across all banks in India.
The RBI (Reserve Bank of India) calculates the base rate in India. The RBI sets this to bring uniform rates to all banks in India.
A base rate comprises of all the elements of lending rates, which are common among the borrowers of various categories.
Note: Lending rate is the rate of interest that a bank lends to its customers. A lending rate includes the operating cost of a product, tenor premium, credit risk premium, and the borrower-specific cost. Therefore, it differs from one segment to the other.
The calculation of base rate is based on different factors. A few of them are:
According to the update done on 5 January 2018, the current base rate of RBI is 8.65 - 9.45%
The 2018 or current base rate of banks are as follows:
|Name Of The Bank||Previous Base Rate||Current Base Rate|
|Karur Vysya Bank||10.30%||10.10%|
|SBI (State Bank Of India)||8.95%||8.65%|
|Bank Of Baroda||9.60%||9.15%|
|Kotak Mahindra Bank||9.20%||9.10%|
|South Indian Bank||10.00%||9.90%|
|PNB (Punjab National Bank)||9.60%||9.35%|
|Union Bank of India||9.20%||8.95%|
|Tamil Nadu Mercantile Bank||10.30%||9.75%|
|United Bank of India||9.90%||9.65%|
|State Bank of Travancore||10.15%||9.95%|
|State Bank of Mysore||9.85%||9.65%|
|State Bank of Hyderabad||9.85%||9.65%|
|State Bank of Bikaner & Jaipur||9.85%||9.65%|
|State Bank of Patiala||9.85%||9.65%|
|Shamrao Vithal Cooperative Bank||9.65%||9.50%|
|Laxmi Vilas Bank||10.95%||10.50%|
|ING Vysya Bank||9.70%||9.45%|
|Indian Overseas Bank||9.50%||9.45%|
|Bank of India||9.55%||9.45%|
|Jammu & Kashmir Bank||9.85%||9.50%|
|Oriental Bank of Commerce||9.65%||9.45%|
|Development Credit Bank||10.64%||10.44%|
|Punjab & Sind Bank||9.95%||9.70%|
|Catholic Syrian Bank||10.50%||10.25%|
|City Union Bank||10.20%||9.75%|
|Bank of Maharashtra||9.70%||9.60%|
It is mandatory for every bank to review its base rate on a quarterly basis. This action has to be taken only after the ALCOs (Asset Liability Management Committees) or the board approves it. Since the primary intention of implementing the base rate system is to sustain transparency in the prices of a lending product, every bank has to reveal its base rate details at all the branches and their official websites too.
Any modifications in the base rate have to be conveyed to the public frequently via appropriate channels. In addition, it is compulsory for all the banks to give proper details to the RBI regarding the minimum & maximum lending rates on a quarterly basis.
Earlier when BPLR (Benchmark Prime Lending Rate) system was employed, large corporates enjoyed rates as low as 3% – 6%. But ever since the concept of base rate has been implemented, no bank is allowed to lend a loan below the base rate.
Well, the impact on a retail customer depends. It could either increase or decrease by 25 basis points compared to the present interest rate he/she enjoys. However, this change will not impact any of the existing customers.
Note: 100 Basis Points = 1%