Facts to know about MCLR
The following are the things to know about MCLR:
- Marginal Cost of Funds based Lending Rate (MCLR) is the new RBI guideline for commercial banks to set lending rates. It has replaced the base rate system.
- Marginal cost of funds is a key component in calculating MCLR. Changes in key rates like repo rate, which alter marginal cost of funds, will impact MCLR.
- The final lending rates offered by the banks are arrived at by adding the ‘spread’ to the MCLR rate.
- All floating rate loans are linked to MCLR.
- Existing borrowers with loans linked to base rate can continue with them till maturity or switch to the MCLR system. However, once a borrow opts for MCLR, they can’t switch back.
- MCLR is a tenure-based benchmark, not a single rate. Banks have to publish at least five MCLR rates across the overnight, one-month, three-month, six-month and one-year tenures.