This is the rate at which banks lend money to their prime customers. This rate is often lower than the rate at which banks lend money to their other customers.
Most PLR customers are top blue-chip companies that have excellent credit records (have never defaulted on their interest payments to the banks from which they borrowed money).
If the RBI increases the bank rate, banks will go ahead and increase their PLRs.
How this affects us: This, in turn, will increase your home loan rates as they are linked to (benchmarked to) PLRs. Home loan rates are always priced below a bank’s PLR as they fall under the priority sector category.
Personal loans and vehicle loans, on the other hand, are always priced above a bank’s PLR.
So does RBI lend money to select companies directly??
Buddy, RBI does not lend money directly to companies. Generally RBI provides money to financial institutions and banks. Those banks lend money to their customers. Certain customers do get loan at a lower rate than others because of their credit history.
AFAIK RBI does not lend money directly to the companies.
1) How does increase in PLR makes the home loan expensive?
2) Does an increased PLR mean increased rate of interest for the non-prime customers on home loans and lower rate of interest on other loans which are priced above the bank’s PLR??
3) How does the PLR fluctuation affect the prime customers??
1. PLR is generally for prime customers. Home loans fall under this category. If you have noticed Home loans are always cheaper compared to other loans such as Personal loans, car loans and others. If the PLR is increased then the Home loans will be increased since Home loans fall under this category.
2. Yes, increased PLR mean increased rate of interest for the non-prime customers on home loans. PLR is much lower than bank interest rates, if PLR increases other loan’s rate of interest also increases and it is not the other way around.
3. PLR fluctuation will either increase or decrease the interest rate of loans that the prime customer has taken. If it increases its bad for them and decreases its good for them as they have to pay less interest.