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- Recently, the State Bank of India, Bank of Baroda and Indian Overseas Bank raised their marginal cost of fund-based lending rates (MCLR) by up to 15 basis points.
Marginal Cost of Funds-Based Lending Rate
- It was instituted by RBI with effect from April 1, 2016. It replaced the base rate structure, which had been in place since July 2010.
- It is the lowest interest rate that a bank or lender can offer. The final rate of lending also includes risk premium and spreads charged by banks.
- It is applicable to fresh corporate loans and floating rate loans taken before October 2019.
- RBI had then switched to the external benchmark linked lending rate (EBLR) system where the lending rate is linked to benchmark rates like repo or Treasury Bill rates.
- Aims and objectives
- To improve the transmission of policy rates into the lending rates of banks.
- To bring transparency in the methodology followed by banks for determining interest rates on advances.
- To ensure the availability of bank credit at interest rates which are fair to borrowers as well as banks.
- To enable banks to become more competitive and enhance their long-run value and contribution to economic growth.
Source:IE
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