What changed
This Master Circular updates the previous July 2006 circular by incorporating all instructions issued up to June 30, 2007. It consolidates existing rules on Benchmark Prime Lending Rate (BPLR), floating rates, penal interest, and monthly rests without introducing new policy changes.
What it means for you
Banks must ensure their lending rate policies align with the consolidated circular, particularly the BPLR framework for loans over ₹2 lakh. The circular reinforces that BPLR must be board-approved, uniformly applied across branches, and serves as the reference rate for pricing. It also reiterates guidelines on penal rates and monthly rests, requiring banks to review their loan agreements and interest calculation practices.
What you must do
- Review and update your bank's lending rate policy to comply with the consolidated Master Circular.
- Ensure BPLR is board-approved, uniformly declared, and applied for all credit limits above ₹2 lakh.
- Verify that loan agreements include enabling clauses for floating rates and penal interest as specified.
- Align interest calculation practices with monthly rests or other prescribed intervals.
- Train credit officers on the updated guidelines, especially regarding BPLR and spread determination.
Who it affects
All Scheduled Commercial Banks (excluding RRBs), Credit departments and loan officers, Board of Directors (for BPLR approval), Borrowers with credit limits over ₹2 lakh
Does this Master Circular introduce any new interest rate rules?
No, it consolidates existing instructions issued up to June 30, 2007, without adding new policy changes. Banks must ensure compliance with the updated circular.
What is the key requirement for BPLR under this circular?
BPLR must be approved by the bank's board, declared publicly, and applied uniformly across all branches for credit limits over ₹2 lakh. It serves as the reference rate for pricing advances.
Are Regional Rural Banks covered by this circular?
No, the circular explicitly excludes Regional Rural Banks (RRBs) from its scope of application.