What is Base Rate
What is Base Rate?
The base rate is the minimum interest rate the Reserve Bank of India permits banks to charge on any loan, introduced from 1 July 2010 to replace the earlier BPLR system. No bank can lend below its base rate, and each bank reviews this rate at least once every quarter.
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 the base rate system, credit pricing became more transparent.
Why is Base Rate System Used?
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 about 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.
Who Calculates the Base Rate 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 base rate benchmark has since been layered over: loans sanctioned or renewed from 1 April 2016 moved to the Marginal Cost of Funds based Lending Rate (MCLR), and monetary policy transmission today flows mainly through MCLR and external benchmark rates rather than the base rate alone.
How is Base Rate Calculated?
The calculation of base rate is based on different factors. A few of them are:
- Deposit cost
- Administrative cost
- Unallocated overhead cost
- The amount of profit a bank earns in the last financial year
Current Base Rate of Banks
The current base rate of banks are as follows:
Name of the Bank | Current Base Rate |
Axis Bank | 9.40% |
Canara Bank | 9.10% |
HDFC Bank | 8.40% |
Dhanlaxmi Bank | 11.90% |
Union Bank of India | 10.60% |
SBI (State Bank of India) | 9.90% |
Bank of Baroda | 9.45% |
IDBI Bank | 9.65% |
Kotak Mahindra Bank | 7.80% |
PNB (Punjab National Bank) | 9.50% |
Bank of India | 10.00% |
Punjab & Sind Bank | 9.70% |
CSB Bank | 11.20% |
RBL Bank | 10.30% |
Note: Interest rates updated on 7 August 2026.
Applicability of the Base Rate
- Every bank loan must be priced based on the base rate set by the Reserve Bank of India (RBI).
- Some loans like DRI advances, staff loans, or loans against deposits are exempt from the base rate rule.
- The base rate is the minimum lending rate; banks cannot offer loans below this rate.
- It acts as a reference for floating interest rates; any changes affect existing linked loans.
- Banks are required to review their base rate quarterly, after board or ALCO approval.
- All branches and bank websites must clearly display the base rate to ensure transparency.
- Any changes to the base rate must be publicly announced through official channels.
- Banks must report their minimum and maximum lending rates to the RBI every quarter.
- New floating-rate retail loans, including home and auto loans, sanctioned from 1 October 2019 are linked to an external benchmark such as the RBI repo rate rather than the base rate; only pre-existing base-rate-linked loans continue until repayment or renewal.
How Does Base Rate Affect the Corporate Borrowers?
Earlier when BPLR (Benchmark Prime Lending Rate) system was employed, large corporations 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.
How Does Base Rate Affect the Retail Customers?
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%
FAQs on Base Rate
1.What is the base rate?
The base rate is the minimum interest rate that the Reserve Bank of India allows Indian banks to charge on any loan, so no lender can price a loan below it.
2.When did the base rate system start in India?
The base rate system took effect across Indian banks on 1 July 2010, replacing the earlier Benchmark Prime Lending Rate (BPLR) framework.
3.Why did the RBI introduce the base rate system?
The RBI introduced the base rate to make bank lending more transparent, since the earlier BPLR system let banks lend to large corporate borrowers at rates far below what retail customers paid.
4.Who sets a bank's base rate?
Each bank calculates and publishes its own base rate using the methodology the RBI has laid down, based on factors like the bank's deposit cost and operating expenses.
5. How is the base rate calculated?
A bank's base rate is built from its deposit cost, administrative cost, unallocated overhead cost, and the profit it earned in the previous financial year.
6. Where can I check the current base rate of a bank?
BankBazaar lists the latest base rate published by major Indian banks in the comparison table above, which is updated whenever a bank revises its rate.
7. Is every loan priced using the base rate?
No, certain loans such as DRI advances, staff loans and loans against a bank's own deposits are exempt from the base rate rule.
8.How often do banks revise their base rate?
Banks are required to review their base rate at least once every quarter, following approval from their board or Asset-Liability Committee (ALCO).
9. Do all banks still use the base rate for new loans?
No, since the RBI began linking new retail and small-business floating rate loans to external benchmarks such as the repo rate, most new home and personal loans no longer use the base rate. Older loans already linked to it continue on this benchmark until repayment or renewal.
10.How does the base rate affect corporate borrowers?
Since the base rate system began, banks can no longer lend to large corporate borrowers below the base rate, unlike under the earlier BPLR system, which allowed such borrowers much cheaper credit.
11.How does a base rate change affect retail customers?
A change in a bank's base rate can move a retail borrower's loan rate up or down by a similar margin, but the change applies only going forward and does not alter payments already made.
12. What is the difference between the base rate and MCLR?
The base rate is the older internal lending benchmark used until March 2016, while the Marginal Cost of Funds based Lending Rate (MCLR) replaced it for loans sanctioned or renewed from April 2016 onwards and tracks a bank's funding costs more closely.
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