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News: Recently, the State Bank of India, Bank of Baroda and Indian Overseas Bank have raised their marginal cost of fund-based lending rates (MCLR) by up to 15 basis points.
What is MCLR?
It is the lowest rate of fund lending. No bank is permitted to lend below this.
The methods used to renew credit limits and sanction loans are per MCLR norms. It is determined by banks internally, depending upon the loan repayment time.
What is purpose of MCLR?
Under MCLR, as soon as the Repo rate changes, banks must adjust their Interest Rates. MCLR is implemented to bring transparency and uniformity at the interest rate on advances followed by banks.
It is also calculated that the interest rate is equally fair and beneficial for the banks and the borrowers. As a result, banks will improve their longrun value and become more competitive using marginal cost pricing of loans.
Which factors impact MCLR?
MCLR is calculated based on four components Marginal cost of fund, Negative carry on account of cash reserve ratio, Operating costs, Tenor premium.
What is difference between MCLR and Base rate?
MCLR is an advanced version of the base rate.
The base rate is based on the average cost of funds, but MCLR is based on the marginal or incremental cost of money.
MCLR depends on the repo rates changed by RBI while Base Rate does not depend on the repo rates changed by RBI.