What is a Base Rate?
- The Base rate is the minimum interest rate bank charges from their clients while giving a loan.
- Banks can charge above the base rate.
- The base rate was introduced because there is no transparency in BENCHMARK PRIME LENDING RATE. So to make it fully transparent base rate is introduced.
- As per RBI guidelines, banks cannot lend money below the base rate.
- The base rate is calculated taking all risk factors into consideration.
- The base rate is fixed by the individual bank, so it will differ from bank to bank.
- Banks declare their base rates on the website to make lending more transparent.
- Banks have to revise base rate at least once every quarter or more than once a quarter as per convenience.
Banks can charge lower base rate for the three categories
- Bank's own employees
- Bank's depositors against their own deposit
- DRI allowances
What is Batch Prime Lending Rate?
- Before, Benchmark prime lending rate, the prime lending rate was used to give a loan to customers.
- Benchmark prime lending is the rate by which banks charge their creditworthy clients.
- Banks can decide BPLR by unanimity of board members.
- RBI's REPO rate and CRR affect the benchmark prime lending rate.
- The BPLR is not a transparent, so sometimes bank could lend below the BPLR. And for that reason BASE rate was introduced.
- Sometimes bank would give a loan to big companies at lower BPLR rate than common people.
|Basis||Base rate||Benchmark prime lending rate|
|Concept||It is a new concept.||It is an old concept.|
|Replacement||Before BASE rate, BPLR use for calculating interest.||Before BPLR, PLR (prime lending rate) use for calculating interest.|
|Transparency||It is fully transparent.||No transparency at all.|
|Revision||At least once a quarterly.||No scheduled time for revision.|
|Disclosure||It is shown on bank website||Not to disclose.|
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