Marginal Cost of Funds based Lending Rates (MCLR)
Source: CMIE Economic Outlook, 1 Finance Research
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What does the Marginal Cost of Lending Rates (MCLR) data represent?
- The Marginal Cost of funds based Lending Rates (MCLR) represents the minimum interest rate at which Scheduled Commercial Banks (SCBs) in India charge their different types of loans.
- MCLR is calculated internally by the bank based on four components – Marginal Cost of Funds, Cash Reserve Ratio (CRR), Tenure Premium, and Operating Costs.
What is the significance of Marginal Cost of Lending Rates (MCLR) data?
- MCLR is a critical factor in the banking sector, influencing the cost of borrowing for businesses and consumers. Banks use MCLR to calculate the interest rate on various loans, including home loans.
- MCLR is an important tool for the transmission of monetary policy. MCLR reflects the current borrowing costs in the economy.
- The level of MCLR can impact the credit availability, credit off-take by businesses and consumers and demand in the economy.
- Trends in MCLR reflect the changing cost of borrowing in the economy and its potential impact on various sectors.
How to interpret the Marginal Cost of Lending Rates (MCLR) data?
- When the MCLR changes, the rates on loans linked to it also changes.
- Lower MCLR makes loans cheaper, potentially stimulating investment and consumption, while higher MCLR can have the opposite effect.
- Changes in RBI's policy rates are reflected through MCLR, indicating the effectiveness of monetary policy transmission.