Benchmark PLR is being introduced by RBI to make PLR more realistic. This is done to ensure that PLR truly reflects the actual costs.

During a survey made of 13 banks by a research analyst of IBA, it was found that there was a need to suggest a common methodology for determining their Prime Lending Rate (PLR). Only five banks out of the 13 banks surveyed were following a systematic methodology for determining PLR. The market forces, the competitor's PLR or the PLR of the leader, guided the other banks. Both PLR and spread are varying widely across banks.

Sectoral PLR is being advocated very strongly by all the banks on the ground that when compared to a single rate system banks will have an option to charge PLR for a specific sector only, rather than changing all the rates together in one go. This is also based on the logic that the response to an interest rate change is not the same across all sectors of the borrowers. The bankers therefore, feel that there should be a different PLR for agriculture sector, industry sector and for housing loans/retail credit.

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