Are you planning to apply for a loan from a bank or financial institution in India? If so, then you may have come across the term BPLR or the Benchmark Prime Lending Rate. In this article, we will delve into the BPLR full form and meaning and understand its significance in the Indian financial system.
Introduction to BPLR
BPLR stands for Benchmark Prime Lending Rate. It is the minimum interest rate that a bank charges its most creditworthy borrowers.
BPLR is set by each individual bank and serves as a benchmark for other lending rates offered by the bank.
Banks have different lending rates for different types of borrowers based on factors such as credit score, collateral, loan amount, and tenure.
BPLR is the rate charged to the bank’s most creditworthy customers, who typically have a credit score of 750 or above.
Calculation of BPLR
BPLR is calculated by taking into account the bank’s cost of funds, administrative expenses, and profit margins. The Reserve Bank of India (RBI) does not set the BPLR; it only provides guidelines for calculating it.
Significance of BPLR
BPLR is significant because it is used as a benchmark for other lending rates offered by the bank. The interest rates for loans such as home loans, personal loans, and business loans are typically offered as a certain percentage above or below the BPLR.
Difference between BPLR and Base Rate
Base Rate is the minimum rate below which banks are not allowed to lend to their customers. It was introduced by the RBI in 2010 to replace BPLR.
However, banks are still allowed to use BPLR for their existing borrowers. The major difference between BPLR and Base Rate is that BPLR is set by the bank, while Base Rate is set by the RBI.
Historical Overview of BPLR
BPLR was introduced in 2003 as a replacement for the Prime Lending Rate (PLR). The PLR was deemed to be opaque and lacked transparency, as each bank had its own definition of the rate.
BPLR was introduced to bring more transparency and standardization to the lending process.
Changes in BPLR over the years
BPLR has undergone several changes over the years. In 2010, the RBI introduced the Base Rate system to replace BPLR.
However, banks were allowed to use BPLR for their existing customers. In 2016, the RBI introduced the Marginal Cost of Funds based Lending Rate (MCLR) system, which is currently used by most banks in India.
Current BPLR Rates of Top Indian Banks
As of March 2023, the BPLR rates of some of the top banks in India are as follows:
- State Bank of India: 6.65%
- HDFC Bank: 6.90%
- ICICI Bank: 6.70%
- Axis Bank: 7.25%
- Punjab National Bank: 6.75%
Advantages of BPLR
One of the main advantages of BPLR is that it allows banks to set their own lending rates based on their cost of funds and profit margins.
This gives them the flexibility to offer loans at competitive rates and attract customers. BPLR also allows banks to adjust their lending rates based on changes in market conditions and their own financial health.
Disadvantages of BPLR
The main disadvantage of BPLR is that it lacks transparency and standardization. Since each bank sets its own BPLR, there is no uniformity in the lending rates offered by different banks.
This makes it difficult for borrowers to compare rates and choose the best option. Moreover, since BPLR is not regulated by the RBI, banks may sometimes manipulate the rate to their advantage.
Alternatives to BPLR
As mentioned earlier, the RBI has introduced several alternatives to BPLR over the years, such as Base Rate and MCLR.
These systems are designed to be more transparent and standardize lending rates across the banking sector. Moreover, the RBI periodically reviews and revises these systems to ensure that they remain relevant and effective.
FAQs on BPLR
While BPLR has been replaced by other systems such as Base Rate and MCLR, some banks still use it for their existing customers.
Since BPLR is not regulated by the RBI, there is a risk that banks may manipulate it to their advantage. However, such practices are illegal and can lead to penalties for the bank.
The interest rate on loans such as home loans, personal loans, and business loans are typically offered as a certain percentage above or below the BPLR. Hence, changes in the BPLR can affect the interest rates on these loans.
The main difference between BPLR and Base Rate is that BPLR is set by the bank, while Base Rate is set by the RBI.
As of March 2023, the BPLR rate of State Bank of India is 6.65%.
In conclusion, BPLR is an important concept in the Indian banking system, as it serves as a benchmark for other lending rates offered by banks.
While it has some advantages, such as flexibility and adaptability, it also has some disadvantages, such as lack of transparency and standardization.
As the banking sector continues to evolve, it is likely that new systems and benchmarks will be introduced to ensure fairness and transparency for borrowers.