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.
