What is the Full Form of RLLR?
RLLR full form is Repo Linked Lending Rate. Before diving into RLLR, let’s understand what the Repo rate is. It is the rate at which the RBI lends to commercial banks and it acts as a benchmark and a foundation for setting interest rates at which the commercial banks further lend loans to the customers. RLLR is linked with the repo rate and it changes every time there’s a variation in the repo rate.
Currently, the repo rate is 6.50% and every bank decides its RLLR on the basis of this rate.
RBI reviews the repo rate quarterly, i.e. every three months to take into account the effects of inflation, economic trends, borrowings, and other economic factors that further affect the RLLR.
Hence, the education loans on which interest rates are of floating charge, get affected by such changes in the repo rate and RLLR.
RLLR in Education Loans
Financing studies abroad or in India can be difficult financially and it is where education loans come into play. If you’re someone who’s looking to get an education loan for yourself or your child, then you must know about RLLR as it highly impacts your education loans. Every change in the repo rate may increase or decrease the interest rate being charged on the education loans.
Education loans that are RLLR-based are much more transparent as they are linked directly with the benchmarks set by the Reserve Bank of India but on the other hand, you may have to pay higher interest charges in case the inflation rate increases. The increased inflation rate may increase the repo rate and hence the RLLR. It is important to learn to navigate education loans in high inflation periods.
Calculation of RLLR
By now you must be interested in how exactly the RLLR is calculated. Calculation of RLLR is very simple as it is the sum of the Repo rate and spread.
Repo Rate = Repo Rate + Spread
As already mentioned above, the repo rate is the rate at which the RBI lends money to commercial banks.
Spread is the addition done by the banks to cover their operating cost and profit margins. The spread is decided differently by every bank and hence, RLLR for banks varies.
Any change in the repo rate will influence the RLLR, either positively or negatively, and hence the ultimate cost for the loans including the education loans.
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RLLR Rates of Different Banks in India
As already explained in the above section, every bank has a different RLLR due to differences in spread. Below is the list of banks and their respective RLLR:
| State Bank of India | 8.75% |
| Punjab National Bank | 9.25% |
| Canara Bank | 9.25% |
| Bank of Maharashtra | 9.30% |
| Indian Overseas Bank | 9.35% |
| HDFC Bank | 6.50% |
| IDBI Bank | 9.10% |
| Central Bank of India | 9.35% |
Please note that the rates mentioned above are subject to change. Please visit the websites of banks or connect with them for the exact applicable rates.
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Important Terms To Remember
If you’ve ever enquired for an education loan or any other financial assistance, you must have come across several terms other than RLLR too like MCLR, Base rate, spread, and reset period. Understanding these terms is crucial to make an informed decision. Let’s break them in detail:
MCLR
MCLR stands for Marginal Cost of a Fund-Based Lending Rate. It is set under the guidelines by RBI and is referred to as the minimum interest rate that a bank can charge while lending a loan to a customer. It was introduced in 2016, replacing the earlier base rate system to ensure a more transparent method for determining interest rates.
It is calculated considering the marginal cost of borrowings, operating costs of the respective banks, and other factors.
Base Rate
The base rate is the rate below which a financial institution typically does not lend money. It should not be confused with MCLR or Marginal Cost of a Fund-Based Lending Rate. Both of them are benchmarks for lending rates but the difference lies in the method of calculation.
As mentioned above, MCLR is calculated on the basis of the marginal cost of funds, and the base rate is calculated on the basis of the average cost of funds.
Spread
Simply put, the spread is a percentage that a bank charges to cover its operational costs and profit margins. It is calculated by deducting the interest rate at which the bank pays to the customers from the interest it earns from lending loans to the customers.
For instance, if ABC Bank lends money at 10% interest and pays 3% on the savings account, then the spread comes out to be 7% (10%-3%).
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Reset Period
The repo rates and the other rates linked to it are adjusted after a regular interval of three months i.e. every quarter. It is done to take into account the effect of inflation, economic trends, and borrowings.
The reset period refers to the period of time after which the interest rates are adjusted.
RLLR vs MCLR: The Difference
RLLR and MCLR can be confusing to differ since both are related to interest rates.
Below is the clear distinction between both terms to provide you with a better understanding:
| Feature | RLLR | MCLR |
| Full form | RLLR full form is Repo Linked Lending Rate | The full form of MCLR is the Marginal Cost of a Fund-based Lending Rate |
| Basis of determination | It is directly linked to the RBI’s repo rate plus the spread. | It is based on the marginal cost of funds, operating costs, etc. |
| Formula | RLLR = Repo Rate + Spread | MCLR = Marginal Cost of funds + Operation Costs + Tenor Premium |
| Reset Period | RLLR changes Quarterly since repo rate is adjusted every three months. | It differs from bank to bank, usually adjusted between 6-12 months. |
| Transparency | More transparent as it is directly linked to the repo rate | Less transparent as it is determined by internal cost calculations by banks |
Final Verdict
In today’s times, it is important to be aware of the banking concepts to make an informed decision since the financial markets are continually growing. Getting a loan is a huge decision as it involves significant financial aspects and interest rates involved can influence your decision. Repo-linked Lending rate or RLLR is an important concept that is a transparent mechanism for setting lending rates.
FAQs of Full Form RLLR –
What is the full form of RLLR?
The full form of RLLR is Repo Linked Lending Rate. Repo rate is the rate at which RBI lends money to commercial banks and this rate acts as a benchmark for RLLR, the rate at which commercial banks lend money to customers.
How does RLLR work?
The repo rate is reviewed by RBI at regular intervals taking into account factors including inflation, economic trends, etc. and accordingly adjust the repo rate. Based on the changes made in the repo rate, RLLR is also changed which ultimately impacts the interest rates provided by lending institutions.
How does RLLR work for education loans?
Since the RLLR is linked with the repo rate, if your education loan has floating interest rates, RLLR will impact your education loan interest rate.
What is the difference between RLLR and MCLR?
RLLR is directly linked to the repo rate and is affected by changes in the repo rate. While MCLR or Marginal Cost of Funds-Based Lending Rate is set by the bank itself under the guidelines of RBI. It is a rate below which banks are not allowed to lend loans to customers.
How frequently does RLLR change?
RLLR is reviewed and changed quarterly i.e. every three months. It is changed to take the effect of inflation, economic changes, etc.
What is the current RLLR rate in India?
The RLLR varies slightly with every bank. Currently, it is 9.10% at IDBI Bank while it is 9.25% at PNB.
When was the RLLR introduced?
RLLR was launched by the RBI in October 2019 as a lending rate benchmark to regulate the lending system in banking.
What is markup in RLLR?
Markup in RLLR can be explained as an additional percentage added to the repo rate as fixed by the RBI. Repo rate plus markup is the final interest rate that is charged on loans.
