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What is Marginal Cost of Funds based Lending Rate (MCLR) ?

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Offline Sora

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MCLR, New concept of lending rate which will replace the existing Base rate lending system of banks in India by 1st April. As per RBI guidelines MCLR (Marginal Cost of Funds based Lending Rate) will be calculated and based on the theory of money raised by banks in the last month or quarter before the lending rate review.

It will be calculated after considering marginal cost of funds (largely, the interest at which banks borrow money), return on equity (a measure of banks' profitability), negative carry on account of cash reserve ratio (the cost that banks incur on account of keeping reserves with the RBI), operating costs and tenure premium (longer the loan term, higher the interest/premium)

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The highlights of MCLR (Marginal Cost of Funds based Lending Rate) :

All rupee loans sanctioned and credit limits renewed w.e.f. April 1, 2016 will be priced with reference to the Marginal Cost of Funds based Lending Rate (MCLR) which will be the internal benchmark for such purposes.
The MCLR will be a tenor linked internal benchmark.
Actual lending rates will be determined by adding the components of spread to the MCLR.
Banks will review and publish their MCLR of different maturities every month on a pre-announced date.
Banks may specify interest reset dates on their floating rate loans. They will have the option to offer loans with reset dates linked either to the date of sanction of the loan/credit limits or to the date of review of MCLR.
The periodicity of reset shall be one year or lower.
The MCLR prevailing on the day the loan is sanctioned will be applicable till the next reset date, irrespective of the changes in the benchmark during the interim period.
Existing loans and credit limits linked to the Base Rate may continue till repayment or renewal, as the case may be. Existing borrowers will also have the option to move to the Marginal Cost of Funds based Lending Rate (MCLR) linked loan at mutually acceptable terms.
Banks will continue to review and publish Base Rate as hitherto.



Re: What is Marginal Cost of Funds based Lending Rate (MCLR) ?
« Reply #1 on: March 30, 2016, 03:06:11 AM »
Will it beneficial to Housing loan and Car Loan customer ? Marginal Cost of Funds based Lending Rate (MCLR) is useful for mainly SODH or Overdraft lending or fund base lending. General customer will benefit the minimum.


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