Question
Download Solution PDFThe base rate is the rate below which no bank can allow their lending to anyone. Who sets up this 'Base Rate' for banks?
Answer (Detailed Solution Below)
Detailed Solution
Download Solution PDFThe correct answer is RBI
Key Points
- The base rate is the minimum rate of interest set by the Reserve Bank of India (RBI) below which banks are not allowed to lend funds to their customers.
- The RBI rules specify that unless there is a government mandate, no bank may offer loans at an interest rate lower than the base rate.
- The base rate is regarded as the standard lending rate which is offered by commercial banks to their borrowers.
- It is determined to increase transparency and to ensure that the banks pass the benefit of lower interest rates to their customers.
- The base rate is calculated only after considering all the risk factors.
- It is fixed by an individual bank, hence it varies from bank to bank.
- Banks should revise the base rate at least once every quarter or more than once a quarter at their convenience.
Last updated on Jun 30, 2025
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