06 March 2011
From 1st July 2010, banks have moved to a system of “base rate” from the existing system of “benchmark prime lending rate (PLR)” that was introduced in 2003.
What is the base rate (BR)? It is the minimum rate of interest that a bank is allowed to charge from its customers. Unless mandated by the government, RBI rule stipulates that no bank can offer loans at a rate lower than BR to any of its customers.
How is it different from bank prime lending rate? BR is a more objective reference number than the bank prime lending rate (BPLR) — the current benchmark. BPLR is the rate at which a bank is willing to lend to its most trustworthy, low-risk customer. However, often banks lend at rates below BPLR. For example, most home loan rates are at sub-BPLR levels. Some large corporates also get loans at rates substantially lower than BPLR. For all banks, BR will be much lower than their BPLR.