Prime Lending Rate

Description

Prime lending rate is the interest rate at which banks lend to its most credit worthy customers. Prime Lending Rate is simplified in this video. 

Transcript

Historically, prime lending rate is the interest rate at which banks lend to its most credit worthy customers. But, over the course of history, banks have come to lend to customers at interest rates below and above the prime lending rate. Prime lending rate of banks do not vary widely. In India, the average lending rate of leading five banks have remained at 10 per cent from May 2015 to September 2015. Earlier, the average lending rate of leading five Indian banks was 10.25 per cent.” Retail prime lending rate is the prime lending rate of retail customers of a bank. Since 2010 July, in India, the phrase “base rate” is used instead of “benchmark prime lending rate”. The reason is that in India, banks were allowed to lend below and above the benchmark prime lending rate. Commercial banks cannot lend below the base rate, though they may if the Reserve Bank of India (RBI) permits it. The right to decide the base rate is at the discretion of banks. When the RBI cut the repo rate, the base rate of commercial banks tend to decline too. On October 6, HDFC Bank cut its retail prime lending rate by 25 basis points, from 9.9 per cent to 9.65 per cent.