What is the Difference Between Base Rate and BPLR Rate?

The Base Rate and Benchmark Prime Lending Rate (BPLR) are both internal benchmarks used by banks to determine interest rates for loans. However, they differ in their calculation methods and transparency levels.

Base Rate:

• Introduced in 2010 by the Reserve Bank of India (RBI) to replace the BPLR system.
• Minimum interest rate at which banks can lend.
• Depends on the average cost of funds.
• Transparency level is high.
• Banks are not allowed to lend below the base rate.

BPLR Rate:

• Introduced in 2003 by the RBI to determine home loan interest rates based on the average cost of funds.
• Fell short of its original objective of bringing transparency to lending rates.
• Calculations of BPLR by various banks were not transparent, and parameters were not disclosed by banks.
• Banks used to consider factors like cost of funds, administrative costs, and a margin over it.

The major difference between the Base Rate and BPLR is the transparency level. The BPLR system lacked transparency, leading the RBI to replace it with the Base Rate system in 2010. The Base Rate system ensures that banks adhere to a minimum interest rate when lending, ensuring more transparency in their lending practices.

Comparative Table: Base Rate vs BPLR Rate

The difference between the Base Rate and the Benchmark Prime Lending Rate (BPLR) can be summarized as follows:

The base rate system was introduced to bring more transparency and consistency in the calculation of interest rates for loans, as the BPLR system allowed banks to offer loans at much higher rates than their BPLR.