LoansFinancial Glossary
Base Rate
Definition
The minimum interest rate set by a bank below which it cannot lend, as mandated by the RBI (replaced by MCLR in 2016 for new loans). Older floating-rate loans may still be linked to the base rate. Each bank calculates its own base rate based on its cost of funds, operating costs, and profit margin.
Why It Matters
If your home loan was taken before April 2016, it is likely linked to the base rate. Banks are slow to reduce base rates even when the RBI cuts repo rates. You can request your bank to switch your loan from base rate to EBLR (external benchmark lending rate) for more transparent rate transmission.