Prime Lending Rate India

While looking for loan interest rates, you must have come across ‘benchmark prime lending rate’ or even ‘prime lending rate meaning’. Ever wondered what they are?

Here you will find answers to what is prime lending rate and what it means. 

What is PLR?

If you are searching for ‘PLR full form in banking’, it stands for - Prime Lending Rate. But before understanding prime lending rate meaning, it is important to understand what lending rate is. 

The lending rate is the rate at which any lender or bank gives out or lends money. 

The prime lending rate is the rate at which leading commercial banks lend money to their most credit-worthy customers. The most creditworthy customers can be defined as the customers whose loans carry the least risk. 

What is BPLR?

BPLR stands for ‘benchmark prime lending rate’ which is related to the PLR. It was started in April 2003, and replaced PLR. As time progressed, it became obvious that there were no restrictions at lending rates that went below the BPLR. Thus, the RBI came up with base rates in July, 2010.

Benchmark Prime Lending Rate - Historical Data

The following table shows the change in the BPLR in the past few years - 

What are Base Rates?

The Base Rate system replaced the BPLR system in July, 2010. Here are some details about the base rates - 

• The base rate is decided by the Reserve Bank of India
• It is the minimum interest rate for banks to give out loans 
• Most commercial banks are allowed to calculate their own base rates keeping the RBI guidelines in mind
• Under the base rate regime, banks are required to keep all calculations transparent
• These base rates are revised every quarter

Who Sets up the Base Rate for Banks?

If your question is who sets up base rate for banks, it is the Reserve Bank of India. The RBI controls the minimum rates at which loans are given out so that some customers are not unfairly favored above others. This also helps keep the economy in check. 

Base Rate for Top Banks

Given below are the base rates for some of the top banks in the country -

What is MCLR?

The Marginal Cost of Fund-based Lending Rate or MCLR was introduced on 1st April, 2016. Here are some details about it - 

• Under this regime, banks are supposed to calculate their interest rates based on an internal reference rate
• Unlike the base rates, this was determined based on the current cost of funds
• It is calculated by taking into account the repo rates, and various other additional components
• The MCLR is connected to monetary policy
• It needs to be revised every month

What is EBLR?

The EBLR stands for External Benchmark Lending Rate, and it was introduced in 2019. Some details about this regime are mentioned below - 

• Under this system, the calculation of interest rate is supposed to be linked to an external factor
• That external benchmark is repo rates, 3 month treasury bill, or 6 month treasury bills
• This system is more strict and leaves no cushion for banks
• As soon as the RBI makes changes in the repo rates, banks have to change their interest rates as well
• This needs to be revised every 3 months

Customers have an option to change to the new system or stick to the old one. They can either change while their loans are being renewed, or they can also pay a nominal fee to switch from one regime to another.

It is advisable to calculate your loan using every regime to see which will be the best option for you.

Conclusion

The Reserve Bank of India maintains a balance in the economy of the country by deciding many factors including the lowest lending rates. Banks are supposed to adhere to these rates for all new loans as well as loans that are getting restructured.

In the meantime, if you are searching for personal loans at affordable interest rates, you can check out moneyview and download the app.