What changed
RBI issued a consolidated Master Circular replacing the July 2004 version, incorporating all instructions issued up to June 30, 2005. The circular reaffirmed that BPLR is the ceiling for loans up to ₹2 lakh and allowed banks to offer loans below BPLR to creditworthy borrowers like exporters based on board-approved policies. It also discontinued the tenor-linked PLR system, requiring banks to set a single benchmark PLR factoring in cost of funds, operating expenses, and regulatory margins.
What it means for you
Banks must continue to cap interest rates on loans up to ₹2 lakh at their declared BPLR, protecting small borrowers. For larger loans, banks have flexibility to price below BPLR for low-risk clients, enabling competitive pricing. The shift to a single BPLR simplifies rate setting but demands transparent cost-based calculations, impacting profitability and loan pricing strategies.
What you must do
- Ensure all loan accounts up to ₹2 lakh carry interest not exceeding your bank's declared BPLR.
- Adopt a board-approved transparent policy for offering loans below BPLR to exporters or other creditworthy borrowers.
- Calculate BPLR based on actual cost of funds, operating expenses, and minimum margin for provisioning and profit.
- Discontinue any tenor-linked PLR systems and use a single benchmark PLR with spreads for term and risk premia.
- Display the BPLR uniformly across all branches and update the schedule of interest rates as per Annexure-I.
Who it affects
All Scheduled Commercial Banks (excluding RRBs and LABs), Borrowers with credit limits up to ₹2 lakh, Exporters and other creditworthy borrowers eligible for below-BPLR rates, Bank treasury and credit policy teams
Can we offer loans below BPLR to all customers?
No, only to exporters or other creditworthy borrowers as per a board-approved transparent policy. The BPLR remains the ceiling for loans up to ₹2 lakh.
What factors should we consider while setting BPLR?
Banks should consider actual cost of funds, operating expenses, and a minimum margin to cover regulatory provisioning/capital charge and profit margin.
Is the tenor-linked PLR system still allowed?
No, the circular discontinues tenor-linked PLR. Banks must use a single benchmark PLR and factor term and risk premia into spreads over or below BPLR.