What is/are the purpose/purposes of the ‘Marginal Cost of Funds based Lending Rate (MCLR)’ announced by RBI?
- These guidelines help improve the transparency in the methodology followed by banks for determining the interest rates on advances
- These guidelines help ensure availability of bank credit & interest rates which are fair to the borrowers as well as the banks
Select the correct answer using the code given below:
Detailed Explanation:
Answer: Option 3 — Both 1 and 2
✅ Statement 1 – Correct: MCLR framework mandates banks to adopt a standardized, transparent methodology for determining lending rates. Banks must disclose their MCLR calculation components (marginal cost of funds, operating costs, tenor premium, and negative carry) publicly, improving transparency compared to the earlier Base Rate system.
✅ Statement 2 – Correct: MCLR ensures fairness by linking lending rates to actual marginal cost of funds, enabling faster transmission of policy rate changes to borrowers. This balances borrower interests (lower rates when RBI cuts rates) with bank viability (covering costs and maintaining reasonable margins), thereby ensuring both availability of credit and fair pricing.
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