What is BPLR ? Meaning of BPLR ? Define BPLR.

What does BPLR stands for in

banking?

In banking parlance, the BPLR means the Benchmark Prime Lending Rate. However,
with the introduction of Base Rate (explained below), BPLR has now lost its importance
and is made applicable normally only on the loans which have been sanctioned before the
introduction of Base Rate (i.e. July 2010).

The BPLR system, introduced in 2003, fell short of its original objective of bringing
transparency to lending rates. This was mainly because under the BPLR system, banks
could lend below BPLR. For the same reason, it was also difficult to assess the transmission
of policy rates of the Reserve Bank to lending rates of banks

Thus, BPLR was / is the interest rate that commercial banks normally charge (or we can
say they were expected to charge) their most credit-worthy customers. [ Although as per
Reserve Bank of India rules, Banks were free to fix Benchmark Prime Lending Rate
(BPLR) for credit limits over Rs.2 lakh with the approval of their respective Boards yet
BPLR was to be declared and made uniformly applicable at all the branches. The AssetLiability Management Committee (ALCO) of respective bank fixed interest rates on
Deposits and Advances, subject to their reporting to the Board immediately thereafter. The
banks were also to declare the maximum spread over BPLR with the approval of the
ALCO/Board for all advances ]

What is Base Rate ? Define Base Rate. Meaning of Base Rate ? Which categories of loans
are exempted from Base Rate ?

The Base Rate is the minimum interest rate of a Bank below which it cannot lend, except in
cases allowed by RBI.
The Base Rate system has replaced the BPLR system with effect from July 1, 2010. Base
Rate shall include all those elements of the lending rates that are common across all
categories of borrowers. Banks may choose any benchmark to arrive at the Base Rate for a
specific tenor that may be disclosed transparently.

There can be only one Base Rate for each bank. However, banks have the freedom to
choose any benchmark to arrive at a single Base Rate but the same needs to disclosed
transparently.

As per RBI guidelines (as in July 2012), the following categories of loans could be priced
without reference to Base Rate :-

(a) DRI Advances;

(b) Loans to banks' own employees including retired employees;
(c) Loans to banks' depositors against their own deposits

Base Rate Guidelines for Restructured Loans :

In case of restructured loans, if some of the WCTL, FITL etc needs to be granted below the
Base Rate for the purpose of viability, and there are recompense etc. caluses, such lending
will not be constructed as a violation of the Base Rate guidelines.

Base Rate - BPLR Differeences ?

The Reserve Bank of India (RBI) committee on reviewing the benchmark prime lending
rate (BPLR) recommended that the BPLR nomenclature be scrapped and a new
benchmark rate known as Base Rate should replace it. Base Rate is much more
transparent and banks are not allowed to lend below the base rate (except for cases
specified by RBI and given above). Base Rate is to be reviewed by the respective banks at
least on quarterly basis and the same is to be disclosed publicly. Moreover, the calculations

of BPLR was mostly NOT transparent and banks were frequently lending below the BPLR
to their prime borrowers and also under pressure due to various reasons.

When was the Base Rate Made Applicable for Banks in India ? To whom the Base Rate is
applicable now ?

RBI had made it mandatory for all banks to introduce Base Rate wef 1st July, 2010. Base
Rate system is applicable to all new loans and for those old loans that come up for renewal
after July 2010. Existing loans based on the BPLR system may run till their maturity. In
case existing borrowers want to switch to the new system, before expiry of the existing
contracts, an option may be given to them, on mutually agreed terms

As per RBI guidelines (as in July 2012), the following categories of loans could be priced
without reference to Base Rate :-

(a) DRI Advances;

(b) Loans to banks' own employees including retired employees;
(c) Loans to banks' depositors against their own deposits

Do RBI fixes Base Rate ? Who fixes Base Rate ? How do the Banks arrive at BPLR and
How is now Base Rate calculated?

Remember, RBI does NOT fix the base rate. It has issued broad guidelines to bank as to
how they should arrive at the base rate. Thus, individual bank itself fixes its own base
rate.
The calculations of the BPLR by various banks was not transparent. In case of BPLR,
Banks normally used to take into consideration the factors like cost of funds,

administrative costs and a margin over it. However, such parameters were neither
disclosed by banks nor were same for all the banks.

The Base Rate calculations include all those cost elements which can be clearly identified
and are common across borrowers. The constituents of the Base Rate includes (i) the card
interest rate on retail deposit (deposits below Rs. 15 lakh) with one year maturity (adjusted
for CASA deposits); (ii) adjustment for the negative carry in respect of CRR and SLR; (iii)
unallocatable overhead cost for banks which would comprise a minimum set of overhead
cost elements; and (iv) average return on net After factoring in costs incurred while
sanctioning a loan, the proposed base rate could be as low as around 8.50% in the current
interest rate scenario (October 2009).

Click Here For : Illustrative Methodology for the Computation of the Base Rate

Why Banks are still continuing with BPLR whereas Base Rate has been made Applicable :

Although RBI has introduced Base Rate as a reference benchmark rate for all floating rate
loan products wef 1st July, 2010, yet RBI has allowed to continue until maturity,
according the same interest rate methodology at which they were approved. Existing
borrowers will have the option of approaching the bank to switch to the base rate system
before the expiry of their loans.

Do all banks have common Base Rate ?

No, each bank will arrive at its own base rate

What is the Rate of Interest in Case of Consortium Loans where banks have different Base
Rates :

Banks need not charge a uniform rate of interest under a consortium arrangement. Each
member bank may charge a rat of interest on the portion of the credit limits extended by it
to the borrower, subject to the condition that such rate of interest is determined with
reference to its Base Rate.