- RBI has not yet issued instructions for banks to allow its customers to shift base rate to MCLR, despite promise.
- 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.
- With the Introduction of MCLR it was expected that the bank would migrate from existing base rate-linked credit exposures to MCLR system.
- 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.
- But bank shown reluctance to migrate.
- This led RBI to intervene.
- RBI announce that base rate would be linked to MCLR from April 1, 2018. But RBI has not issued instructions regarding this till now
- 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.