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The Reserve Bank of India on Tuesday said it may review the Marginal Cost of Funds Based Lending Rate (MCLR) implementation by banks.
This review will be undertaken in the context of structural and cyclical factors impeding transmission of its policy rate cuts to bank lending rates, particularly stressed balance sheets of banks and sluggish credit growth, and significant softening of long-term yields.
In this scenario, the Reserve Bank would continue to manage liquidity proactively and consistent with the stance of monetary policy, while taking timely and appropriate measures to insulate the system from shocks.
The MCLR system introduced on April 1, 2016 was designed taking into account limitations of both the Benchmark Prime Lending Rate and the base rate regimes.
Under the MCLR system, banks determine their benchmark lending rates linked to marginal cost of funds.
The MCLR consists of four components: (a) marginal cost of funds (i.e., marginal cost of borrowings comprising deposits and other borrowings, and return on net worth), (b) negative carry on account of cash reserve ratio (CRR), (c) operating costs and (d) term premium/discount for prescribed maturities.
The MCLR plus spread is the actual lending rate for a borrower. The spread comprises two components -- business strategy and credit risk premium.
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