9. What is Base Rate?
It is the minimum rate of interest that a bank is allowed to charge from its customers. Each bank can determine their base rate in accordance with the norms given by the RBI. According to the RBI, Base Rate shall include all those elements of the lending rates that are common across all categories of borrowers. The base rate may differ from one bank to the other. But the following four components usually determine the base rate of particular bank. These components are: Cost for the funds (interest rate given for deposits), Operating expenses, Minimum rate of return (profit), and Cost for the CRR (for the four percent CRR, the RBI is not giving any interest to the banks)
