PLR AND HOME LOAN RATE

The prime lending rate (PLR) maes a

difference to home laon borrowers. Here is how it works to lower your home loan

interest rate

What is PLR?

It is a benchmark rate of interest at which banks lend to their creditworthy

customers. This rate is used as a yardstick to compute inerest rates for other

borrowers.

When does PLR change?

Apart from the bank's ownpolicy, PLR is also dependent on how the Reserve Bank of

India (RBI) toggles its key rates like the cash reserve ratio (CRR) and repo rate.

When the PLR is increased or decreased by the lender, it translates into more or less

outflow for the borrowers

Relation between PLR and home loan

interest rates

PLR is a benchmark that varies from lender to lender. The rate of interest charged by

a bank could be half a percent more tha the benchmark PLR. A cut in the bank's PLR

will reduce the interest burden for borrowers.

Impact of key policy rates on PLR

The RBI toggles its key policy rates to bring certain volatile situations under

control. For instance, the RBI may take measures to draw out excess money from the

system, rein in inflation, invigorate a slumped economy, infuse liquidity or control a

spiraling price rise.

CRR is the portion of funds tat banks have to retain with the RBI. Repo rate is the

rate at which banks borrow money from the RBI. If the RBI reduces the repo rae, it

will be cheaper for banks to borrow money. Lowering the CRR and repo rate will infuse

more liquidity into the system . This could translate into a less expensive cost of

borrowing

Courtesy:- FT dtd:- 29-03-09