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Economic Affairs Types of Banks and Banking

Consider the following statements :

1.The rate of interest which the RBI charges its clients on their long-term borrowing is the Bank Rate in India.

2.The rate of interest the RBI charges from its clients on their short-term borrowing is the repo rate in India

3.Reverse Repo Rate is the rate of interest the RBI pays to its clients who offer short term loan to it

4.Marginal Cost of Funds based Lending Rate (MCLR) is the minimum interest rate, above which a bank is not permitted to lend unless authorised by RBI

Which of the above statement is/are correct ?

1 and 2

2 and 3

3 and 4

1, 2 and 3

The marginal cost of funds based lending rate (MCLR) refers to the minimum interest rate of a bank below which it cannot lend, except in some cases allowed by the RBI. It is an internal benchmark or reference rate for the bank. MCLR actually describes the method by which the minimum interest rate for loans is determined by a bank - on the basis of marginal cost or the additional or incremental cost of arranging one more rupee to the prospective borrower.
The MCLR methodology for fixing interest rates for advances was introduced by the Reserve Bank of India with effect from April 1, 2016. This new methodology replaces the base rate system introduced in July 2010. In other words, all rupee loans sanctioned and credit limits renewed w.e.f. April 1, 2016 would be priced with reference to the Marginal Cost of Funds based Lending Rate (MCLR) which will be the internal benchmark (means a reference rate determined internally by the bank) for such purposes.
Existing loans and credit limits linked to the Base Rate (internal benchmark rate used to determine interest rates uptill 31 March 2016) or Benchmark Prime Lending Rate (BPLR or the internal benchmark rate used to determine the interest rates on advances/loans sanctioned upto June 30, 2010.) would continue till repayment or renewal, as the case may be. However, existing borrowers will have the option to move to the Marginal Cost of Funds based Lending Rate (MCLR) linked loan at mutually acceptable terms.