RBI to link base rate with MCLR

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The Reserve Bank of India (RBI) on Thursday said that it will link the base rate with the Marginal Cost of Funds based Lending Rates (MCLR) from April 1 to ensure expeditious transmission of its policy rate to borrowers.

Although the RBI had introduced the MCLR system with effect from April 1, 2016, the central bank in a statement said that a large proportion of bank loans continue to be linked to the base rate.

The RBI Deputy Governor NS Vishwanathan on February 7, after the Monetary Policy Committee (MPC) meeting, had said that the apex bank had decided to harmonize the methodology of determining benchmark rates by linking base rate to MCLR, as it is more sensitive to policy rate signals.

Former RBI governor Raghuram Rajan had introduced the MCLR to calculate the benchmark lending rate in another attempt to make banks pass on policy rate cut benefits to borrowers quickly and in a convenient and transparent manner.

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