What is the base rate?
When you borrow money to buy a house or car or electrical appliance, there is an interest rate that you have to pay to the lender. The base rate is the minimum rate that a bank will lend money at. Think of it as a floor below which RBI will not allow banks to lend to you.
Previously, banks used to price the loans they offered you on a complicated system called benchmark prime lending rate (BPLR). Each bank has its own BPLR methodology which made it difficult for borrowers to compare rates across banks. Now, with the base rate in place, it will be easier for all of us to compare across banks and to get a more transparent sense of how the interest rate for the loan is being arrived at.
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