A large portion of bank loans remain linked to the base rate despite the introduction of the MCLR in April 2016. Weak monetary transmission during a rate cut cycle has been one of the central bank’s pet peeves. RBIhas proposed to link the base rate for loans with the marginal cost of funds-based lending rate (MCLR) from 1 April to improve monetary policy transmission. Unlike base rate regime, these rates are expected to get revised on monthly basis along with the repo rate including other borrowing rates. Banks decide the actual lending rate based on the floating rate by adding the component of spread to MCLR which becomes the final lending rate. The MCLR system was introduced by the Reserve Bank to provide loans on minimal rates as well as market rate fluctuation benefit to customers. MCLR is calculated on the basis of incremental cost of funds, making it a more reliable benchmark rate as compared to the base rate, usually calculated by taking into account average cost of funds based on the borrower’s risk profile