An Explainer: Prime Lending Rate

Prime lending rate is defined as the interest rate, at which banks lend to its credit-worthy customers. But, this has changed over the years and banks now lend to customers at interest rates below and above the prime lending rate.

PropGuide Explains Prime Lending Rate

Prime lending rate of banks do not vary widely. In India, the average lending rate of leading five banks has stood at 10 per cent from May 2015 to September 2015. Earlier, the average lending rate of these leading five Indian banks was 10.25 per cent.

Retail prime lending rate is the prime lending rate for retail customers of a bank. Since July 2010, in India, the phrase 'base rate' is used, instead of 'benchmark prime lending rate'. The reason is, in India, banks were allowed to lend below and above the benchmark prime lending rate. Though commercial banks still cannot lend below the base rate, they may if the Reserve Bank of India (RBI) permits. The right to decide the base rate is bank's discretion. When the RBI cut the repo rate, the base rate of commercial banks tends to decline too.

On October 5, HDFC Bank cut its retail prime lending rate by 25 basis points (bps) , from 9.9 per cent to 9.65 per cent.

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