# MCLR Rate of All Banks in India | MCLR Current Rate Jan 28, 2022

After April 1, 2016, majority of Loan Interest Rates such as Home Loan Interest Rates, Loan against Property, etc. are linked to MCLR (Marginal Cost of funds based Lending Rate) in order to resolve the problems of the Base Rate regime. Loan Borrowers who have availed the loan before April 2016 are under the Base Rate regime, where the interest rate charged is much higher compared to MCLR. RBI has after April 1, 2016 made it compulsory for all banks to make marginal cost of funds based lending rates.

## MCLR Rate Meaning

MCLR (Marginal Cost of funds based Lending Rate) is the minimum rate of interest declared by any bank below which the bank cannot offer any kind of loan. It replaces the Base Rate which used to prevail before April 1, 2016. The Base Rate was introduced by RBI in July 1, 2010 to regulate the lending systems by the banks.

## What is Base Rate?

Base rate is the minimum rate set by the Reserve Bank of India (RBI) and below this rate, the banks cannot lend to their customers. RBI introduced the concept of base rate on July 1, 2010. The RBI (Reserve Bank of India) calculates the base rate in India.

Base rate system has been introduced in order to bring more transparency into floating interest rate segment. Base rate serves as a benchmark for the floating interest rate of a loan. As on 5 January 2018, the base rate declared by the RBI is 8.65% to 9.45%.

BPLR (Benchmark Prime Lending Rate) system used to exist before the introduction of base rate system.

## How MCLR linked Interest Rates are Beneficial?

Introduction of MCLR linked interest rates are beneficial for the customers as well as for the banks as they provide:

• Better Transparency
• Increase Competitiveness
• Benefit of change in policy rates to the customers
• Fair calculation of lending rates

## Basis of Calculation of MCLR

MCLR is calculated on the basis of following four components:

1. Marginal Cost of Funds (interest rates on bank deposits)
2. Negative carry on account of Cash Reserve Ratio (CRR)
3. Operating Costs

The Reserve Bank of India (RBI) has asked banks to set at least five MCLR rates as follows:

• Overnight
• One month
• Three month
• Six month
• One year

These rates should be reviewed on a monthly basis by the banks. Apart from above tenures, banks are free to set rates for longer durations also.

## Review of MCLR

Banks might audit and distribute their Marginal Cost of Funds based Lending Rate (MCLR) of various developments consistently on a pre-decided date with the endorsement of the Board or whatever other advisory group to which powers have been appointed.

In any case, banks which don't have satisfactory frameworks to do the audit of MCLR on a month to month premise, may survey their rates once a quarter on a pre-declared date for the first year, i.e. up to March 31, 2017. From there on, such banks ought to embrace the month to month audit of MCLR as specified in (i) above.

## RBI's Guidelines on MCLR

• Actual lending rates will be determined by adding the components of spread to the MCLR.
• No lending is permitted below the MCLR of a particular maturity for all loans linked to that benchmark.
• Fixed rate loans are exempted from being linked to MCLR as the benchmark for determining interest rate.
• Existing borrowers with loans linked to Base Rate can continue with base rate system till repayment of loan.
• Banks should allow base rate borrowers to switch to MCLR.
• Once a borrower of loan opts for MCLR, switching back to base rate system is not allowed.
• Banks need to specify interest reset dates on their floating rate loans and this periodicity of reset can be one year or lower.

## Exemptions from MCLR

• Advances to banks' depositors against their own deposits.
• Advances to banks' own employees including retired employees.
• Advances granted to the Chief Executive Officer / Whole Time Directors.
• Loans linked to a market determined external benchmark.
• Fixed rate loans granted by banks.

## How MCLR Works?

• Suppose a person has availed home loan which is linked to one year MCLR
• One year MCLR is at 8.40% at the time he took the loan
• Home Loan spread was 0.20% over MCLR
• So he will get the loan at 8.60% (MCLR + Spread)

• Now Repo rate is cut by 25 basis points by the RBI
• As an effect, the bank also reduced its one year MCLR by 20 basis points i.e. 0.20%
• Now the one year MCLR is set at 8.20%
• As a result, the interest rate on loan will be 8.40% (MCLR + Spread) for the borrower

## Banks Vs NBFCs/ HFCs

Banks offer Home Loan on MCLR linked Interest Rates. There are two more options open for the home loan borrowers who may consider opting for home loans either from non-banking finance institutions (NBFCs) or housing finance companies (HFCs).

NBFCs and HFCs, however, do not have the concept of MCLR and offer loan by setting their own rates based on their fund costs, funds available to lend and competition.

## Quick Watch List

• The Reserve Bank (RBI) is linking the base rate for loans given by banks to the MCLR from April 1, 2018. Hence, the base rate will automatically increase or decrease along with the MCLR without any specific action required for adjustment. This will be very beneficial for the home loan borrowers whose rates (EMIs) are still linked to the base rate.
• Base rates are higher than MCLR.
• MCLR is applicable for Banks only and home loans offered by NBFCs or HFCs don't have any concept of MCLR.
• The tenor of MCLR will be chosen by the banks. The reset period can be different as chosen by the bank such as one month, three months, six months or one year.
• MCLR linked interest rates will be beneficial to borrowers whenever interest rate cycle is in a downward regime.
• Banks have different MCLR for different maturity of loans.

## What is Reset Period?

Reset period is the period after which any change in MCLR rate will come into effect in the interest rate on your MCLR linked loan. According to the RBI guidelines, "The periodicity of reset shall be one year or lower. The exact periodicity of reset shall form part of the terms of the loan contract."

When you avail a loan e.g. a home loan linked with MCLR, the applicable interest rate on your loan will only be changed according to the reset period of your loan. Therefore, if your home loan is having a reset period of 1 year, then the effect of change in MCLR will occur in your home loan interest rate only after 1 year.

The benefit of falling MCLR is not very immediate to the home loan borrowers because most of the banks reset the interest rate after 1 Year for their home loan borrowers in the MCLR regime.

Let us understand it more clearly with the help of an example:

If you availed a 1 year reset period home loan which has been taken in June 2018 and the bank cuts MCLR in November 2018, the effect of it for you can be seen in June 2019 only i.e. after 1 year from your availing the loan due to the reset period of 1 year. So there will be a waiting period of 1 year for you to see an impact on your home loan EMIs.

The lending bank has the option to reduce or increase the EMIs or extend the repayment period or both consequent upon revision in interest rate.

## Bank MCLR FAQs

MCLR based home loans get faster transmission of rate changes by the RBI which pass on maximum benefits to the home loans customers. Banks usually change their MCLR on monthly basis in order to transmit more and more benefits to their borrowers.

MCLR rate is decided by the banks and other financial institutions based on the marginal cost incurred by them. However, the RBI has set a formula by which every bank and other financial institutions can calculate and declare their MCLR rates. MCLR also gets affected by the changes in Repo rate change, for exaple: if there is a decrease in the repo rate, the MCLR rate will also decrease and when the repo rate is increased by the RBI, the MCLR rates will also increase as a result of it.

Major drawback with the base rate system was that under Base Rate regime, loan borrowers were not used to get benefited with the change in the policy rates made by the RBI from time to time. The RBI has introduced MCLR for replacing the base rate system and to pass on the maximum benefits of the policy rate changes to the borrowers. Banks and other financial institutions are required to set their benchmark MCLR rates for various durations which range between 1 day and 1 year.

MCLR (Marginal Cost of funds based Lending Rate) is the minimum rate of interest declared by any bank below which the bank cannot offer any kind of loan. It replaces the Base Rate which used to prevail before April 1, 2016.

The Reserve Bank of India (RBI) has asked banks to set at least five MCLR rates as follows:

• Overnight
• One month
• Three month
• Six month
• One year

These rates should be reviewed on a monthly basis by the banks. Apart from above tenures, banks are free to set rates for longer durations also.

MCLR: MCLR is the reference rate or internal benchmark for the banks. It got introduced in the year 2016. It gets revised almost every month. It is more transparent and is dependent upon the repo rate changes.

Base Rate: Base Rate is the minimum rate of interest at which banks offer loan. It got introduced in the year 2010. It does not gets revised on monthly basis. It is less transparent and is independent of the repo rate changes.

MCLR is determined by the banks based on the loan tenors. As MCLR is a tenor-linked internal benchmark of banks, the rate is determined internally by the bank depending on the period left for the repayment of a loan. As such, the calculation of MCLR depends upon various factors such as marginal cost of funds, negative carry on account of CRR, tenor premium and operational cost.

MCLR Latest News - Oct 2020

16 Oct 2020: Punjab and Sind Bank revises its MCLR for different tenors with effect from Oct 16, 2020.

9 Oct 2020: State-owned Bank of Baroda trims MCLR by 5 basis points on various tenor w.e.f. Oct 12, 2020.

1 Oct 2020: India's second largest Private Sector lender ICICI Bank cuts its MCLR on various tenors by 5 bps with effect from Oct 1, 2020.

1 Oct 2020: Bank of India cuts its MCLR for different tenors by 5 bps with effect from Oct 1, 2020.

MCLR Latest News - Sep 2020

19 Sep 2020: State Bank of India (SBI) informs that there will be a 100% waiver in the processing fee for all borrowers who apply for car, gold, and personal loan through YONO App.

04 Sep 2020: State Bank of India (SBI) has reduced the MCLR reset frequency from 1 year to 6 months for retail loans for extending the benefits of a reduction in the interest rate to the retail borrowers without waiting for a year. This new reset frequency of 6 months will be applicable for new loans.

MCLR Latest News - Aug 2020

14 Aug 2020: Central Bank of India slashes its MCLR by 5 bps across tenors from August 15.

10 Aug 2020: Indian Overseas Bank (IOB) cuts its MCLR by 10 basis points across all tenors from August 10.

9 Aug 2020: Canara Bank reduces MCLR by up to 30 bps across various tenors.

7 Aug 2020: HDFC Bank, the country's largest private sector bank, cuts its MCLR by 10 bps across tenors from August 7.

4 Aug 2020: ICICI Bank slashes its MCLR by 5 bps across tenors.