Interest rate of the loan by adding the risk premium of the loan

Kathmandu, The base rate is the rate calculated by including the elements that can be clearly identified in determining the interest rate of the loan. In which the interest rate is determined by adding the risk premium of the loan i.e. risk rate and this applies equally to the borrowers consuming the loan from the bank.

However, the base rate is not the actual interest rate of the loan. This is just the basis for determining interest rates. Which can also be called interest rate reference rate. That is, banks should set the base rate as the reference rate and set the interest rate. Banks are now setting interest rates by adding a certain percentage to their base rate.

In general, when the base rate decreases, the interest rate on banking loans decreases. But, it also has a place for banks to play. The bank can add a few percent premium to the base rate depending on the customer. There is a provision to add only 2 percent premium to the base rate in various concessional loans brought by the government. The monetary policy of the current fiscal year has stated that only a maximum of 2 percent premium can be added to small loans. For loans above Rs 10 million, banks have the right to set their own premiums.

At present, the base rate of Rastriya Banijya Bank is 5.41 percent. If you go to this bank for a loan of less than Rs 10 million, adding a maximum of 2 percent to the base rate will result in an interest rate of 7.41 percent.