PLR Full Form, Meaning in Banking & Importance - Kotak Bank
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22 JUNE, 2023

Buying a property requires a significant amount of financial investment. People often opt for a Home Loan to get the necessary funds in case their savings aren’t sufficient. Now when we consider any loan, it is imperative to evaluate certain factors. Interest rate is chief among them. While planning to buy a house through credit, understanding interest rates and how they impact the monthly EMI and overall payment is crucial for determining the actual cost of your purchase.

For this, you should be aware of what is PLR rate. The full form of PLR is Prime Lending Rates. Let's dig deeper and understand how this affects the interest rate on your Home Loan.

PLR in Home Loans

The PLR in India is crucial in determining the interest rate for various loans, including Home Loans. Let’s begin with what PLR is in banking. It is the rate at which banks and financial institutions lend money to their customers. Think of it as a benchmark rate that sets the foundation for loan interest rates.

Each financial institution sets its own PLR rate, which can vary from customer to customer based on factors like credit history, income, and job stability. When you apply for a Home Loan, the lender will calculate the Home Loan interest rate by adding a percentage, known as the "spread," to the PLR rate.

Understanding the PLR rate and spread is essential because they directly impact the overall cost of your loan. Even a slight increase in the rate can significantly increase your monthly payments. It's worth noting that borrowers with lower credit scores or less credibility may be charged a higher interest rate than the standard rates.

Key Factors Affect Prime Lending Rate in India

In compliance with RBI guidelines, lending institutions cannot set their PLR rate below the RBI's "base rate" unless expressly permitted by the RBI. The PLR rate is determined by the bank's management, considering various factors such as operating expenses, minimum margin requirements, and funding costs.

These factors, when combined, determine the "spread." The spread represents the additional cost lenders consider on top of the Repo Rate. The interest rate offered to customers is calculated by adding the spread to the prime lending rate.

The formula for calculating the interest rate is:

Interest Rate = (Spread + Prime Lending Rate)

It's essential to remember that the prime lending rate and the spread are vital factors influencing the final interest rate offered to borrowers.

PLR  loan interest rates

The relationship between prime lending rates and loan interest rates is direct and significant. The PLR rate is the benchmark for determining interest rates on loans, and changes directly impact borrowers and lenders. An increase in the rate results in higher interest rates for borrowers, leading to increased loan repayments. Conversely, decreasing the PLR rate leads to lower interest rates for borrowers, giving relaxation on monthly obligations. These changes in PLR rates affect affordability and cost of borrowing, while lenders adjust their lending rates accordingly to maintain profitability and manage their risk exposure.

Read also: What Is TDS On Home Rent? Know all possible Rules and Payment Modes


Understanding what Prime Lending Rate is is crucial for homebuyers seeking a loan to finance the house they desire. The PLR rate is the benchmark interest rate banks and financial institutions use to determine the interest rates on various loans, including Home Loans. It directly influences the interest rate offered to borrowers, along with the additional factor of the spread.

FAQs Prime Lending Rate

What does PLR stand for in the banking industry?

In the banking industry, PLR Full Form is "Prime Lending Rate." It represents the interest rate at which financial institutions provide loans to their most creditworthy customers, serving as a benchmark for loan rates.

Who sets the Prime Lending Rate in India?

In 2003, the Reserve Bank of India (RBI) introduced the Prime Lending Rate, which directly correlates with the Repo Rate. The Repo Rate represents the interest rate at which the RBI provides loans to commercial banks.

How often does the Prime Lending Rate change in India?

The bank updates and revises the BPLR (Benchmark Prime Lending Rate) and base rate every quarter.

Is the Prime Lending Rate applicable to all types of home loan in India?

No, the Prime Lending Rate (PLR) does not apply to all loans in India. PLR applies mainly to loans offered by banks to their most creditworthy customers

Is the prime lending rate applicable to all types of loans or specific to particular categories?

The prime rate is the fundamental benchmark for various financial products, including credit cards, home equity loans and lines of credit, auto loans, and personal loans. Additionally, numerous small business loans are linked to the prime rate.

How does the Prime Lending Rate in India compare to other countries' benchmark rates?

The comparison of Prime Lending Rates (PLRs) across different countries can vary significantly due to various factors, including economic conditions, monetary policies, and banking regulations.  While India's PLR rates may be higher than some developed economies, accurate comparisons are difficult due to differences in central banks' policy frameworks and transparency around benchmark rates.

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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.