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 at interest rates which are fair to the borrowers as well as the banks.
Select the correct answer using the code given below.
[UPSC Civil Services Exam – 2016 Prelims]
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither I nor 2
- The marginal cost of funds-based lending rate (MCLR) represents the minimum interest rate at which a bank is permitted to lend to borrowers. The Reserve Bank of India (RBI) has issued comprehensive guidelines outlining the computation of interest rates on loans based on the marginal cost of funds.
- Statement 1 is correct as the MCLR guidelines have been introduced to enhance transparency in the determination of interest rates by banks. These guidelines provide a clear methodology for determining lending rates, which improves transparency for borrowers.
- Statement 2 is also correct as the MCLR guidelines aim to ensure fair interest rates for both borrowers and banks. By facilitating the transmission of policy rates into lending rates, the guidelines promote availability of bank credit at rates that are reasonable and equitable.
- Additionally, the implementation of marginal cost pricing through MCLR is expected to enhance the competitiveness of banks. This, in turn, can contribute to their long-term value and support economic growth.
- In summary, both statements 1 and 2 are correct, and the MCLR guidelines serve to improve transparency, fairness, and competitiveness in the lending rates of banks.