Computation of Base Rate in Banks

Abstract

The banks are primarily the Financial Institutions performing the function of financial intermediation. The financial intermediation involves accepting deposits from those who save and lending to those who need the funds. Those who save and invest their savings in banks in the form of deposits expect adequate compensation in the form of interest so as to protect the purchasing power of their savings after factoring for the inflation. It would be their normal expectation to earn some premium over the inflation rate as an incentive for savings.