Base rate is a bank's benchmark rate that serves as the minimum rate at which loans are offered to its customers. Each bank decides its base rate and it is reviewed every quarter.

The base rate is fixed on the basis of four main components-cost of deposits, operating costs, the cost of maintaining SLR and CRR, and profit margin.

The final lending rate comprises the base rate and an additional spread based on the bank's perception of the borrower's credit quality. It's also adjusted for product-specific costs and tenures.

The loans exempt from base rate include those against deposits, agricultural loans, those given to bank employees, credit card receivables and export credit.

The base rate can also serve as a benchmark for floating rate loans, such as for home loans.

Home loan borrowers can choose to shift to the base rate as reference rate without having to pay any extra fee. By doing so, they can benefit from the rates linked to the current cost.