Saturday, November 2, 2013

Base Rate vs BPLR

What is the meaning of BPLR ? . What does BPLR stands for in banking industry?  What is Benchmark Prime Lending Rate in banking sector?

In banking sector, the BPLR means the Benchmark Prime Lending Rate.   BPLR is the intt. rate that commercial banks normally charge (or we can say they are expected to charge) their most credit-worthy clients or customers.  Although as per Reserve Bank of India(RBI) rules, Banks are free to fix Benchmark Prime Lending Rate for credit limits over Rs. two lakhs with the approval of their respective Boards yet BPLR has to be declared & made uniformly applicable at all the branches. The banks may authorize their Asset-Liability Management Committee to fix interest rates on Deposits & Advances, subject to their reporting to the Board immediately thereafter. The banks have also to declare the maximum spread over "BPLR" with the approval of the ALCO/Board for all advances,.   However, with the introduction of Base Rate, BPLR is slowly losing its importance & is made applicable normally only on the loans which have been sanctioned before the Base Rate(BR) has been made compulsory.

What is Base Rate & definition & meaning of base rate ?

The Base Rate is the minimum interest rate(MIR) of a Bank below which it cannot lend, except  for DRI advances, loans to bank's own employees & loan to banks' depositors against their own deposits. 

What is the difference between Base Rate & BPLR ?

The Reserve Bank of India (RBI) committee on reviewing the benchmark prime lending rate (BPLR) recommended that the BPLR nomenclature be scrapped & a new benchmark rate which known as Base Rate — should replace it.   Base Rate is much more transparent & banks are not allowed to lend below the base rate (except for cases specified by Reserve bank of india (RBI)).   Base Rate(BR) is to be reviewed by the respective banks at least on quarterly basis & the same is to be disclosed publicly.   On the other side, the calculations of BPLR was mostly not transparent & banks were frequently lending below the BPLR to their prime borrowers & also under pressure due to various reasons,.

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