{"id":1868,"date":"2024-03-30T00:57:28","date_gmt":"2024-03-29T19:27:28","guid":{"rendered":"https:\/\/lotusarise.com\/qna\/?p=1868"},"modified":"2024-04-03T07:09:38","modified_gmt":"2024-04-03T01:39:38","slug":"q-what-is-are-the-purpose-purposes-of-the-marginal-cost-of-funds-based-lending-rate-mclr-announced-by-rbi","status":"publish","type":"post","link":"https:\/\/lotusarise.com\/qna\/upsc\/q-what-is-are-the-purpose-purposes-of-the-marginal-cost-of-funds-based-lending-rate-mclr-announced-by-rbi","title":{"rendered":"Q.\u00a0What is\/are the purpose\/purposes of the \u2018Marginal Cost of Funds based Lending Rate (MCLR)\u2019 announced by RBI?"},"content":{"rendered":"\n
    \n
  1. These guidelines help improve the transparency<\/strong> in the methodology followed by banks for determining the interest rates on advances.<\/li>\n\n\n\n
  2. These guidelines help ensure availability of bank credit<\/strong> at interest rates which are fair to the borrowers as well as the banks.<\/li>\n<\/ol>\n\n\n\n

    Select the correct answer using the code given below.<\/p>\n\n\n\n

      \n
    • 1 only<\/li>\n\n\n\n
    • 2 only<\/li>\n\n\n\n
    • Both 1 and 2<\/li>\n\n\n\n
    • Neither 1 nor 2<\/li>\n<\/ul>\n\n\n\n
      \n

      Answer:<\/strong> (c) Both 1 and 2<\/strong><\/p>\n<\/blockquote>\n\n\n\n

      Notes:<\/h5>\n\n\n\n
        \n
      • MCLR, which stands for Marginal Cost of Funds based Lending Rate, is a fixed Internal Reference Rate given by the Reserve Bank of India (RBI) for banks<\/strong> under its jurisdiction.<\/li>\n\n\n\n
      • This interest rate serves as the minimum lending rate for all banking and non-banking institutions.<\/li>\n\n\n\n
      • MCLR is the minimum lending rate below which a bank is not permitted to lend.<\/strong><\/li>\n\n\n\n
      • It is aimed at facilitating the calculation of the minimal interest rate<\/strong> for various types of loans that banks offer.<\/li>\n\n\n\n
      • The Reserve Bank of India (RBI) introduced the MCLR methodology for fixing interest rates on April 1, 2016<\/strong>, in order to enhance the effectiveness of monetary policy transmission as well as increase transparency <\/strong>in the rate of interest setting procedure. <\/li>\n\n\n\n
      • It replaced the base rate structure<\/strong>, which had been in place since July 2010.<\/li>\n\n\n\n
      • How is MCLR calculated?\n
          \n
        • MCLR is determined internally by the bank<\/strong> depending on the period left for the repayment of a loan.<\/li>\n\n\n\n
        • MCLR is\u00a0closely linked to the actual deposit rates<\/strong>\u00a0and is\u00a0calculated based on four components:\n
            \n
          • the marginal cost of funds<\/li>\n\n\n\n
          • negative carry on account of cash reserve ratio<\/li>\n\n\n\n
          • operating costs<\/li>\n\n\n\n
          • tenor premium.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n\n\n\n
          • Under the MCLR regime, banks are free to offer all categories of loans at fixed or floating interest rates.<\/strong><\/li>\n\n\n\n
          • The actual lending rates for loans of different categories and tenors are determined by adding the components of spread to MCLR.<\/li>\n\n\n\n
          • Therefore, the bank cannot lend at a rate lower than the MCLR<\/strong> of a particular maturity for all loans linked to that benchmark.<\/li>\n\n\n\n
          • Banks review and publish MCLRs of different maturities, every month. <\/strong><\/li>\n\n\n\n
          • Certain loan rates, like those of fixed-rate loans with tenors above three years and special loan schemes offered by the government, are not linked to MCLR.<\/li>\n<\/ul>\n\n\n\n
            Difference between MCLR and Base rate<\/h6>\n\n\n\n
              \n
            • MCLR is an advanced version of the base rate.<\/strong><\/li>\n\n\n\n
            • The base rate is the minimum rate of interest set by the RBI<\/strong>; no financial institution can lend at an interest rate below the base rate.<\/li>\n\n\n\n
            • MCLR is an internal benchmarking system applied by a financial institution, under which they can set their own lending rates considering a spread factor.<\/li>\n\n\n\n
            • The base rate is based on the average cost of funds, but the MCLR is based on the marginal or incremental cost of money.<\/strong><\/li>\n\n\n\n
            • The base rate does not get impacted by the revision of RBI\u2019s repo rate, while MCLR gets impacted as and when RBI revises the repo rate<\/strong>.<\/li>\n\n\n\n
            • Usually, the minimum rate of return or profit margin is taken into consideration while deriving the base rate. While determining the MCLR, the tenor premium is taken into consideration.<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"

              Select the correct answer using the code given below. Answer: (c) Both 1 and 2 Notes: Difference between MCLR and Base rate<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_kad_blocks_custom_css":"","_kad_blocks_head_custom_js":"","_kad_blocks_body_custom_js":"","_kad_blocks_footer_custom_js":"","_kad_post_transparent":"","_kad_post_title":"","_kad_post_layout":"","_kad_post_sidebar_id":"","_kad_post_content_style":"","_kad_post_vertical_padding":"","_kad_post_feature":"","_kad_post_feature_position":"","_kad_post_header":false,"_kad_post_footer":false,"_kad_post_classname":"","footnotes":""},"categories":[1,3],"tags":[38],"years":[57],"class_list":["post-1868","post","type-post","status-publish","format-standard","hentry","category-upsc","category-prelims","tag-indian-economy","years-57"],"acf":[],"taxonomy_info":{"category":[{"value":1,"label":"UPSC"},{"value":3,"label":"Prelims"}],"post_tag":[{"value":38,"label":"Indian Economy"}],"years":[{"value":57,"label":"2016"}]},"featured_image_src_large":false,"author_info":{"display_name":"LotusArise","author_link":"https:\/\/lotusarise.com\/qna\/author\/team-lotusarise"},"comment_info":0,"category_info":[{"term_id":1,"name":"UPSC","slug":"upsc","term_group":0,"term_taxonomy_id":1,"taxonomy":"category","description":"","parent":0,"count":1269,"filter":"raw","cat_ID":1,"category_count":1269,"category_description":"","cat_name":"UPSC","category_nicename":"upsc","category_parent":0},{"term_id":3,"name":"Prelims","slug":"prelims","term_group":0,"term_taxonomy_id":3,"taxonomy":"category","description":"","parent":1,"count":1251,"filter":"raw","cat_ID":3,"category_count":1251,"category_description":"","cat_name":"Prelims","category_nicename":"prelims","category_parent":1}],"tag_info":[{"term_id":38,"name":"Indian Economy","slug":"indian-economy","term_group":0,"term_taxonomy_id":38,"taxonomy":"post_tag","description":"","parent":0,"count":225,"filter":"raw"}],"_links":{"self":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts\/1868","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/comments?post=1868"}],"version-history":[{"count":0,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts\/1868\/revisions"}],"wp:attachment":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/media?parent=1868"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/categories?post=1868"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/tags?post=1868"},{"taxonomy":"years","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/years?post=1868"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}