What is are the purpose purposes of the Marginal Cost of Funds based Lending Rate MCLR rsquo announc...........

Economic Affairs Money Supply and Monetary Policy

What is/are the purpose/purposes of the `Marginal Cost of Funds based Lending Rate (MCLR)’ announced by RBI?

1. These guidelines help improve the transparency in the methodology followed by banks for determining the interest rates on advances.

2. These guidelines help ensure availability of bank credit at interest rates which are fair to the borrowers as well as the banks.

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1 only

2 only

Both 1 and 2

Neither 1 nor 2

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Explanation:

RBI introduced the MCLR framework, under which banks have to calculate their cost of funds based on the latest rates offered on deposits or borrowings. This was to ensure that changes in deposit rates were immediately reflected on banks’ cost of funds.

This ensures better transmission and transparency of rates and helping improve the transmission of policy rates into the lending rates of banks, these measures are expected to improve transparency in the methodology followed by banks for determining interest rates on advances.

Based upon this MCLR, interest rate for different types of customers should be fixed in accordance with their riskiness. So, it become fair to both borrowers as well as lenders.