IBA outlines parameters for benchmark PLR

The four parameters are cost of funds, cost of capital (dividend outgo and coupon rate in the case of Tier-II capital), operational costs and profitability.

Each bank will be required to calculate its BPLR based on these parameters, as against the present practice of changing PLRs purely on the basis of market trends.

Announcing this here today, V Leeladhar, the chairman of IBA, said that a circular had been issued to all banks today with this effect.

"After calculating the BPLR, each bank has to submit it to its respective board for the approval. Once it is approved by the board, the bank has to widely publicise its BPLR. We hope, the BPLR concept will come into effect from January 2004," Leeladhar, who is also the chairman of Union Bank, said.

However, BPLR concept will not be applied in the case of 10-12 types of advances such as housing loans, loans against shares and bills, and consumer durable loans, Leeladhar added.

Making a difference between the PLR and BPLR, the IBA chairman said: "PLR is the minimum rate of interest at which banks are supposed to lend. BPLR is the rate around which banks will lend money. The latter is transparent and calculated on the basis of certain fundamental parameters. It should benefit the customer."

IBA has not stipulated any periodicity for the review of BPLR. "It is left to the banks. it will be a vibrant one. A bank can review its BPLR whenever there are changes in the underlying parameters. If there is a reduction in the BPLR, all the customers will be benefited to that extent, which may not be true in the case of PLR," Leeladhar added.

"While the present PLR of banks varies from 10.50 per cent 12 per cent, BPLR is expected to be a little less than that," he pointed out.