base rate
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By Sandeep Chaudhary

What is the Base Rate of Banks and Financial Institutions?

What is the Base Rate of Banks and Financial Institutions?

The base rate of banks and financial institutions primarily refers to the minimum rate at which the institution calculates its cost of funds. This rate is determined by considering the expenses required to acquire deposits, the mandatory reserves that need to be maintained as per the rules of the central bank, the cost of sustaining necessary liquidity, and the operational costs.

How is the Base Rate Calculated?

Currently, the base rate is calculated as follows: Base Rate=Cost of Funds+Mandatory Reserve Costs+Statutory Liquidity Costs+Operational Costs (all in percentages)

The base rate fluctuates every month, and this information can be found in newspapers and on the respective bank's website.

Do Banks and Financial Institutions Add Profits to the Base Rate?

As per the current practice, profits or returns are not included in the calculation of the base rate.

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