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PLR

Amit Gupta (Loosening Myself) (1508 Points)

26 June 2009

Hi friends

Please tell me what is meant by PLR ( Prime lending ratio) and hw it is concerned with floating rate on the loan??

Impact of change in PLR On economy??

And any defination by Accounting Standards on it?

Thanxx..

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2 Replies

Ranjit (Sr. Manager (Taxation)) (43 Points)
Replied 28 June 2009

plr= prime lending rate, means the specific rate on which money are lended to

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siva prasad (profession) (22 Points)
Replied 01 July 2009

PLR or prime lending rate is the rate of interest at which banks lend to their credit-worthy or favoured customers. It is treated as a benchmark rate for most retail and term loans.

The RBI does not set these rates, but in a broad way stipulates the interest rates in the economy. The banks are at liberty to lend at a rate above or below the RBI’s.

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 PLR should be.

Significance

Excessive money in the economy leads to inflationary trends. To control inflation, government may curb the money supply by increasing the lending rates or PLR. When RBI increases the PLR, banks may follow suit, making borrowing a costlier affair.

This hike in lending rates is bound to negatively impact businesses/industries which depend on banks for their working capital and expansion requirements.