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Banks free to delink interest rates from PLR

The Reserve Bank of India has decided to provide freedom to the commercial banks to charge interest rates without reference to the Prime Lending Rate in respect of lending to intermediary agencies and discounting of bills.

In its mid-term review of the Monetary and Credit Policy, the RBI made several modifications in the norms relating to PLR and asked the banks not to refer PLR even while providing advances and overdraft facilities against domestic FCNR (foreign currency non resident Indian) deposits as well as loans covered by refinancing schemes of term lending institutions.

Currently, loans upto Rs 200,000 carry the prescription of ''not exceeding PLR'' and on loans above Rs 200,000, the PLR is the minimum lending rate.

To provide more operational flexibility to banks, the RBI felt that the PLR of the bank for commercial credit are entirely within the purview of the banks and are no longer prescribed by the RBI.

Banks would have to decide their PLR in light of various factors such as cost of funds, transaction costs and interest rates ruling in the non-banking sector.

ALSO SEE

RBI Governor Bimal Jalan's policy statement

RBI's Credit and Monetary Policy 1999-2000

RBI's Credit and Monetary Policy 1998-1999

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