Important Bullet Points:
- BPLR refers to Benchmark Prime Lending Rate and RPLR stands for Retail Prime Lending Rate.
- BPLR or RPLR both mean the same and is basically the rate at which the banks charge those customers who are most credit worthy.
- The credit worthiness of a customer is determined on the basis of his ability to pay back the amount he has taken from the bank. Generally, the large corporations are a bank’s most credit worthy customers.
- According to the RBI, in India the banks can fix their BPLR or RPLR with the approval of their boards. It is also important to know that the BPLR system failed to provide any transparency in the lending rates of the bank as the calculations under the BPLR system is not that transparent and owing to this, it was possible for the banks to lend below the BPLR to their customers.
- Since the BPLR or RPLR system was creating problems regarding transparency, it had to be replaced by another system. The system that replaced BPLR in home loans was base rate. You must be wondering now what do you mean by base rate, it is basically the minimum interest rate of lending of a bank, below the base rate the bank is not allowed to lend except for DRI allowances, loans to the bank’s employees and loans to bank’s depositors against their own deposits.
- It was from July 1, 2010 that the base rate system replaced the BPLR system in India. In case the loans were taken before 1st July, 2010 then they are still continued and the interest is given according to BPLR, however, the people who had taken these loans were given the option to switch to base rate before their loan expires.
- The Base Rate is not fixed by the Reserve Bank of India, individual banks fix their own base rates and as a result of this, every bank has a different base rate. Banks need to declare their base rate on their website to provide more transparency on their website.
- According to the policy of the RBI, it is necessary for the banks to revise their base rates at least once every quarter. It is after doing the required calculations that banks decide what is to be one, whether to continue with the same base rate or to enforce another.
How does Base rate and BPLR influence home loan?
- At the time of easy availability of funds in the system, the base rate is reduced & the interest is changed downwards to make the credit more striking, similarly at the time of less availability of funds, the base rate is increased and the change is on upward side. It does not really make a big difference if you take home loan from BPLR or Base rate as your home loan outflow is not affected much by BPLR or Base rate since there is not much difference in interest rate as base rate has mark up and BPLR has discount.