Benchmark Prime Lending Rate
ALM TERM PAPER
Submitted By: Group 3
Section A
Sunny Khatwani (U109047)
Suvendu Panda (U109048)
Tuktuk Bansal (U109050)
Abhijeet Ray (U109051)
Abhinav Mittal (U109053)
Anuradha Mohnata (U109055)
Anwesh Padhee (U109056)
Arijit Rej (U109057)
Ayan Ghosh (U109059)
Batala Mayuri (U109060)
Bank: Punjab National Bank
Category: Nationalised Bank
Year and Basis: Financial Year 2009-10 (Annual Report)
There are three components to the Term Paper:
1. Benchmark Prime Lending Rate (BPLR):
2. Base Rate: 8.99%
3. CRIB Score based on CAMEL Rating: 73.166 (Credit Rating: A, Modest Risk)
Detailed calculations are shown in subsequent sections.
I. Benchmark Prime Lending Rate (BPLR)
II. Base Rate
What is Base Rate?
Starting July 1, 2010, RBI had introduced a new Base Rate system which will set the interest rates for the bankers to lend their borrowers. It is the minimum rate of interest that a bank is allowed to charge from its customers. Unless mandated by the government, RBI rule stipulates that no bank can offer loans at a rate lower than base rate to any of its customers. Before setting the Base Rate System, banks used another rate system called Benchmark Prime Lending Rate (BPLR) to set their lending rates.
Why Base rate?
There was an inherent structural problem in the banking industry. Even though the industry is by and large deregulated, a few lending rates are still mandated and linked to banks’ BPLR. Previously, banks used to price the loans they offered you on a complicated system. Each bank has its own BPLR methodology which made it difficult for borrowers to compare rates across banks. Also due to the fact that certain loans had mandate to be given below banks’ BPLR e.g. loans to exporters and small farmers. So banks preferred to keep their BPLR at an artificially high level and charge most of their borrowers a rate much below the benchmark rate. This is the only way they could prevent loan rates for exporters and small farmers
Submitted By: Group 3
Section A
Sunny Khatwani (U109047)
Suvendu Panda (U109048)
Tuktuk Bansal (U109050)
Abhijeet Ray (U109051)
Abhinav Mittal (U109053)
Anuradha Mohnata (U109055)
Anwesh Padhee (U109056)
Arijit Rej (U109057)
Ayan Ghosh (U109059)
Batala Mayuri (U109060)
Bank: Punjab National Bank
Category: Nationalised Bank
Year and Basis: Financial Year 2009-10 (Annual Report)
There are three components to the Term Paper:
1. Benchmark Prime Lending Rate (BPLR):
2. Base Rate: 8.99%
3. CRIB Score based on CAMEL Rating: 73.166 (Credit Rating: A, Modest Risk)
Detailed calculations are shown in subsequent sections.
I. Benchmark Prime Lending Rate (BPLR)
II. Base Rate
What is Base Rate?
Starting July 1, 2010, RBI had introduced a new Base Rate system which will set the interest rates for the bankers to lend their borrowers. It is the minimum rate of interest that a bank is allowed to charge from its customers. Unless mandated by the government, RBI rule stipulates that no bank can offer loans at a rate lower than base rate to any of its customers. Before setting the Base Rate System, banks used another rate system called Benchmark Prime Lending Rate (BPLR) to set their lending rates.
Why Base rate?
There was an inherent structural problem in the banking industry. Even though the industry is by and large deregulated, a few lending rates are still mandated and linked to banks’ BPLR. Previously, banks used to price the loans they offered you on a complicated system. Each bank has its own BPLR methodology which made it difficult for borrowers to compare rates across banks. Also due to the fact that certain loans had mandate to be given below banks’ BPLR e.g. loans to exporters and small farmers. So banks preferred to keep their BPLR at an artificially high level and charge most of their borrowers a rate much below the benchmark rate. This is the only way they could prevent loan rates for exporters and small farmers