Q: What is/are the purpose/purposes of the `Marginal Cost of Funds based Lending Rate (MCLR)’ announced by RBI?
a) These guidelines help improve the transparency in the methodology followed by banks for determining the interest rates on advances.
b) These guidelines help ensure availability of bank credit at interest rates which are fair to the borrowers as well as the banks.
The correct answer is Both 1 and 2.
Marginal cost of funds-based lending rate (MCLR)
- It is the lowest interest rate that a bank can charge borrowers.
- The Reserve Bank of India issued final guidelines for calculating interest rates on advances based on the marginal cost of funds.
- The transmission of policy rates into bank lending rates is also improved by these rules.
- It helps to improve transparency in the methodology followed by banks for determining interest rates on advances. Hence statement 1 is correct.
- These guidelines are also expected to ensure availability of bank credit at interest rates which are fair to the borrowers as well as the banks. Hence statement 2 is correct.
- Marginal cost pricing of loans will help the banks become more competitive and enhance their long-run value and contribution to economic growth.
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