Learning Center

Difference between PLR and MCLR​

Benchmark Prime Lending Rate or BPLR is a leading rate and its significance has been ended due to inclusion of base rate and MCLR, MCLR being the latest. Banks could lend below the BPLR. MCLR stands for Marginal Cost of Funds based Lending Rate. It has been put since April 2016 onwards.

Repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds. Repo rate is used by monetary authorities to control inflation.

PLR Rates – In 2003-04 , Reserve Bank of India introduced the “Benchmark Prime Lending Rate” . Now all banks have the liberty to determine their Benchmark Prime Lending Rate (BPLR) popularly known as PLR, with the approval of their respective Boards. PLR is uniform and applicable at all the branches of respective bank.

MCLR – Marginal cost of funds-based lending rate – Marginal cost of funds-based lending rate (MCLR) is an internal reference rate for banks fixed by the Reserve Bank of India (RBI).MCLR is calculated based on the loan tenor, i.e., the amount of time a borrower has to repay the loan. This tenor-linked benchmark is internal in nature. The bank determines the actual lending rates by adding the elements spread to this tool. The banks, then, publish their MCLR after careful inspection.

Base Rate – Base rate is the minimum rate set by the Reserve Bank of India below which banks are not allowed to lend to its customers. Description: Base rate is decided in order to enhance transparency in the credit market and ensure that banks pass on the lower cost of fund to their customers.

Repo Rate – The lending interest rate linked to repo rate is known as Repo Rate Linked Lending Rate (RLLR). RLLR is made up of RBI’s repo rate plus spread or margin. RLLR = Repo rate + Margin charged by the bank. The Central Bank reviews the repo rate in every two months.

Reverse Repo Rate – Reverse repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) borrows money from commercial banks within the country. It is a monetary policy instrument which can be used to control the money supply in the country.

Credit Score – A credit score is a numerical expression based on a level analysis of a person’s credit files, to represent the creditworthiness of an individual. A credit score is primarily based on a credit report, information typically sourced from credit bureaus.

Credit Rating – A credit rating is an evaluation of the credit risk of a prospective debtor, predicting their ability to pay back the debt, and an implicit forecast of the likelihood of the debtor defaulting.

EBLR – External Benchmark based Lending Rate (EBLR) for MSME Loans. All floating rate loans to Micro, Small & Medium Enterprises (MSMEs) have been linked to External Benchmark based Lending Rate (EBLR) by State Bank of India (SBI) w.e.f. 01.10. 2019. RBI’s Repo Rate is considered as Benchmark Rate.