Bank of India, State Bank cut interest rates:

Bank of India, State Bank cut interest rates:

Part of: GS Prelims –Economy and GS-III- Banking

In news:

• Recently, The State Bank of India (SBI) and the Bank of India (BoI) have reduced their lending rates by cutting the marginal cost of fund-based lending rate (MCLR)
• The Reserve Bank of India (RBI) announced measures to ease interest rates

From Prelims Point of View:

Marginal cost of fund-based lending rate:

• The minimum interest rate that a bank can lend at. 
• MCLR is a tenor-linked internal benchmark, which means the rate is determined internally by the bank depending on the period left for the repayment of a loan.
• It is closely linked to the actual deposit rates and is calculated based on four components: the marginal cost of funds, negative carry on account of cash reserve ratio, operating costs and tenor premium.
• Reserve Bank of India introduced the MCLR methodology for fixing interest rates from 1 April 2016. 
• It replaced the base rate structure, which had been in place since July 2010.banks are free to offer all categories of loans on fixed or floating interest rates.
• The actual lending rates for loans of different categories and tenors are determined by adding the components of spread to MCLR.
• Therefore, the bank cannot lend at a rate lower than MCLR of a particular maturity, for all loans linked to that benchmark.