What are sub-PLR loans?

If you are in any kind of business and frequently take loans from banks to fulfil your financial needs, you may have come across terms such as BPLR or Sub-PLR. Even if you are not a businessman, you may have heard about the term while applying for loans or reading about interest rate and repo cuts. Before we can start discussing Sub-PLR, we need to understand what BPLR is.

What is BPLR?

By definition, the Benchmark Prime Lending Rate (BPLR), is the reference interest rate based on which a bank lends to its credit worthy borrowers. Normally, loans are given out a little more or a little less than this reference interest rate. All retail loans are linked to the BPLR or the PLR. So, any change in it will affect the cost at which you take a loan from a bank.

The Reserve Bank of India does not set these rates, but in a broad way stipulates the interest rates in the economy.

The PLR is influenced by RBI's policy rates - the repo rate and cash reserve ratio - apart from the bank's policy. In simple words, availability of funds in the banking system and demand for credit by consumers (both retail and industrial) determine what the BPLR should be.

What is a 'spread'?

Spread is the difference between the BPLR (prime lending rate) and the loan interest rate. This can be "x" plus or "x" minus the BPLR rate fixed by the bank.

What are Sub-PLR Loans?

Some banks provide loans and advances at a rate lower than the BPLR (Prime Lending Rate) of the bank to customers availing finance for business purposes or short-term funds for various needs (usually large companies, major exporters and some individuals etc.) with high credit ratings.

This enables them to attract bigger clients, offer bigger amounts of loans since the high credit worthiness is a likely indicator of customers making regular payments and this in turn helps the banks to increase business and get more profits from their loans.

What is current scenario for Sub-PLR loans?

Due to the current economic slowdown, most banks had stopped giving out Sub-PLR loans for some time. With improved liquidity conditions, banks are back on the trend of disbursing loans at discounted rate that is below benchmark prime lending rates (BPLR).

Majority of fresh loans, around 65 per cent to 70 per cent are being disbursed at sub-PLR rates now as opposed to the situation some time back. This trend is prevalent currently to encourage credit growth, which has been facing a slump as an after effect of the global recession.

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