RBI to link base rate with MCLR

MUMBAI: Reserve Bank of India will link the bank base rates with the so called marginal cost of funds based lending rate (MCLR) system to ensure that all bank loans effectively reflect the changes in the policy rates.

In its monetary policy review RBI said all base rates will be linked to MCLR effective from 1 April. “Since MCLR is more sensitive to policy rate signals, it has been decided to harmonize the methodology of determining benchmark rates by linking the base rate to the MCLR with effect from April 1, 2018. Necessary instructions will be issued by the end of next week,” RBI said.

The new MCLR regime was implemented in the fiscal year starting April 2016. It applies to all new borrowers and is closely linked to bank deposits rates. All new floating rate loans are now linked to MCLR.


The RBI had also set up an internal panel headed by principal advisor, monetary policy department Janak Raj to improve MCLR transmission which recommended linking bank lending rates to a market benchmark.