What it is
NRB wanted loan pricing to be transparent, so in 2012 it made every commercial bank publish a base rate: the minimum rate at which it can lend without losing money.
The formula adds up: the cost of funds (average deposit rate), the cost of keeping idle reserves at NRB (CRR) and in government bonds (SLR), the bank's operating cost, and a return on assets that NRB fixed at 0.75% for all banks.
Banks then quote loans as 'base rate + premium'. When the base rate moves, existing floating-rate loans move with it. That is why borrowers watch this number.
For an investor, the base rate shows how expensive the bank's money is overall. A lower base rate than peers means a cost advantage.
How it is calculated
Base rate (%) = Cost of funds + Cost of CRR + Cost of SLR + Operating cost ratio + 0.75% (return on assets, fixed by NRB). Published monthly; the quarterly report prints the period's figure.
Worked on Nabil Bank Limited, FY 2082/83 Q4
NABIL's base rate was 4.44% at the end of FY 2082/83 Q4, built on a cost of funds of 3.09%. A loan priced at base rate + 2% would carry 6.44%.
What good looks like
Lower than peers means the bank can lend cheaper and win good borrowers, or lend at the same rate and earn more. Neutral in itself: the whole sector's base rate rises and falls with liquidity.
Watch out
- A falling base rate across all banks is a market move, not a bank-specific strength.
- Base rate is a floor; actual loan rates include the premium, which NRB also regulates.
- The quarterly figure is a period average or month-end; monthly figures on the bank's site differ.
In Nepal
NRB introduced the base rate for commercial banks in late 2012; components as reported: cost of funds, CRR cost, SLR cost, administrative cost and a 0.75% return on assets fixed by NRB. Garima Bikas Bank's published Shrawan 2075 sheet shows the same five lines (8.09 + 0.35 + 0.25 + 1.94 + 0.75 = 11.39%). NRB has since issued the detailed method in its Unified Directive on interest rates; the component formulas are set there.
Questions
Floating loans are priced at base rate plus a fixed premium. When the bank's base rate moves, your rate moves.
NRB set the base rate as the floor for pricing; banks must price loans off it. Check the current NRB directive for exceptions.