Repo Rate Vs. MCLR Vs. Base Rate Vs. BPLR - Full Form, Difference, & Meaning
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20 APRIL, 2022

When you avail of a Home Loan, you might have come across terms like MCLR (marginal cost of funds based on lending rate), BPLR (Benchmark Prime Lending Rate), Base Rate (BR), and Repo Rate (RR). Repo Rate full form is Repurchasing Option, the rate at which the RBI repurchases securities from commercial banks. These are different benchmark rates that lending institutions use to determine your home loan interest rate. Therefore, it is crucial to understand these benchmark rates. The following sections will discuss the Repo Rate, Base Rate, MCLR, and BPLR full form, meaning significance, and differences.

What is BPLR? Meaning & Its Full Form

\BPLR full form in banking is Benchmark Prime Lending Rate. The RBI introduced the BPLR rate in 2003 to determine home loan interest rates based on the average cost of funds. However, due to a lack of transparency, the RBI replaced it with a Base Rate in 2010.

What is the Base Rate?

The Base Rate was the minimum interest rate at which Indian banks could lend. They were not permitted to resort to any lending below this rate. The base rate was determined significantly by the average cost of funds. As per RBI policies, lenders were required to review their base rate at least once every quarter. The central bank replaced the base rate with MCLR in April 2016.

What is MCLR ? Meaning & Its Full Form

The Marginal Cost Lending Rate is the minimum rate below which banks cannot lend. It is an internal rate fixed by individual banks for loans with floating interest rates. The MCLR is linked to the marginal cost of funds, operating costs, cost of carrying in cash reserve ratio and tenure premium. When we look at MCLR vs base rate, MCLR uses the current cost of funds to determine the rate instead of the base rate that calculates it based on the average cost of funds. MCLR is also more responsive to changes in policy rates. However, there still needed to be more transparency in customers' home loan interest rates.

What is the Repo Rate?

Lastly, the RBI introduced a new method of external benchmark-based lending rates to increase transparency. Under this, banks were instructed to link their lending rates to an external benchmark such as the repo rate, three-month treasury bill, or six-month treasury bill. Most of the lenders opted for repo rate to link their lending rates. Looking into MCLR vs repo rate, the repo rate offers more transparency in the system, and borrowers know that their interest rate will also change

Whenever RBI raises or lowers the repo rate.

If any benchmark rate changes, borrowers have the right to switch to the new rate or stick to the old one. After understanding the difference between MCLR and base rate and other rate types, you must assess your savings by each rate type and then decide. You could also take an expert’s assistance to make the right decision.

Key Comparison Between BPLR, Base Rate, MCLR & Repo Rate

Understanding the four types of rates can be confusing. So, here is a clear understanding of MCLR, BPLR, bank rate and repo rate difference.

Parameter BPLR Base Rate MCLR Repo Rate
Full Form Benchmark Prime Lending Rate Base Rate Marginal Cost Lending Rate Repurchasing Option Rate
Introduction Date 2003 2010 2016 2006
Meaning The interest rate that the commercial banks charge from their customers for loans. Minimum rate below which lenders cannot lend loans to borrowers A parameter that banks use to calculate interest rates on various loans The rate at which the RBI repurchases securities from commercial banks
Transparency Level Low Medium High Medium

Frequently Asked Questions

1) How do the MCLR and base rate affect loan interest rates?

When we look at base rate vs MCLR, a lower MCLR results in a lower interest rate, meaning smaller EMIs for the borrowers. Conversely, the base rate has a direct connection with the central bank’s rate. If the RBI increases the base rate, commercial banks will also increase their loan interest rates, making loans costlier for the borrowers.

2) How is the benchmark prime lending rate calculated?

The major issue with BPLR is that it does not have a fixed formula to calculate the loan interest rate. Commercial banks used each customer’s creditworthiness to charge them with an interest rate.

3) Which is lower, base rate or MCLR?

MCLR is usually lower than the base rate. Although both are based on similar principles, the base rate depends on the average cost of funds, while MCLR depends on the marginal or incremental cost of funds. Therefore, the base rate is calculated by evaluating the minimum profit margin or return rate.


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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.