MCLR, base rate merger proves elusive.

MCLR, base rate merger proves elusive.

News

  1. RBI has not yet issued instructions for banks to allow its customers to shift base rate to MCLR, despite promise.

Important Facts

  1. Base rate is the erstwhile loan pricing mechanism which was replaced by MCLR — the Marginal Cost of funding based Lending Rate — from April 1, 2016.
  2. With the Introduction of MCLR it was expected that the bank would migrate from existing base rate-linked credit exposures to MCLR system.
  3. This would benefits large number of customer as the one-year MCLR of bank is lower than base rate
  • For example, SBI’s base rate is 8.7% while its one-year MCLR is 8.25% — a difference of 45 basis points.
  1. But bank shown reluctance to migrate.
  2. This led RBI to intervene.
  3. RBI announce that base rate would be linked to MCLR from April 1, 2018. But RBI has not issued instructions regarding this till now
  4. This is because RBI in its internal study found that if public sector banks offer their customers a lower interest rate, they will incur a loss of 40000cr.
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