The base rate is the rate below which no bank can allow their lending to anyone. Who sets up this 'Base Rate' for banks?

Correct option is D

The correct answer is (d) RBI

The Base Rate is the minimum interest rate below which a bank cannot lend to its customers, except in certain specified cases like agricultural loans or loans to employees.

Key Points:

• 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 offered by commercial banks to borrowers.
• It is determined to increase transparency and to ensure that banks pass the benefits of lower interest rates to 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.

Additional Information:

• The Reserve Bank of India (RBI) has set the Bank Rate at 6.75%.
• In addition to the Bank Rate, the RBI has maintained other key policy rates as follows:
  • Repo Rate: 6.50%
  • Reverse Repo Rate: 3.35%
  • Marginal Standing Facility (MSF) Rate: 6.75%
  • Standing Deposit Facility (SDF) Rate: 6.25