Kathmandu. The base rate of commercial banks has increased by 2.19 percentage points in the third quarter of the current Fiscal Year (FY). The base rate of commercial banks has increased in the corresponding period of the current fiscal year as compared to mid-April last year. As of mid-April last year, the base rate of these banks was 6.91 percent. However, the average base rate of commercial banks stood at 9.10 percent till mid-April this year.

 Banks set interest rates based on the base rate when disbursing loans. The base rate is also the minimum loan limit. Banks have been adding premium up to a maximum of 5 percent to the base rate depending on the nature of the loan.

An increase in the bank's base rate has a direct effect on interest rates. They add a few percent premium to the base rate of the bank and fix the interest rate on the loan. No banks lend below the base rate.

Due to that, the interest rate on loans issued by commercial banks is not below 10 percent. When borrowing from a bank with higher base rate, the borrower gets higher interest rate. This will increase the cost to the borrower. The base rate of banks has increased significantly in one year.

Mega Bank and Sunrise Bank are among those whose base rate will be more than 10 percent by mid-April. The base rate of Mega Bank was 7.59 percent in mid-April last year, while in the same period of the current fiscal year, the base rate of this bank has remained at 10.10 percent. The base rate of the bank has increased by 2.51 percentage points in one year.

Similarly, the base rate of Sunrise Bank has increased from 7.59 percent in mid-April last year to 10.11 percent in the corresponding period of the current fiscal year. The base rate of this bank has also increased by 2.88 percentage points in one year.