Concept of Base Rate

A RBI working group chaired by Sh. Deepak Mohanthy submitted “Report of the Working Group on Benchmark Prime Lending Rate (BPLR)” in October 2009. It was directed to review the BPLR system and suggest changes to make credit pricing more transparent. In the mean time, Committee on financial reforms chaired by Shri Raghuram G. Rajan, had also deliberated on the issue of interest rate ceilings for small loans. They concluded that bulk of the loan is disbursed at rates below the PLR — popularly known as sub-PLR. Nearly 70% of the loan is at sub-PLR rates. On account of competitive pressures, banks were lending part of their portfolio at rates which did not make much commercial sense. In short, the present lending system is suffering from the lack of transparency.