MCLR

December 2018, Paper-II
Question
Which of the following is not an objective of Marginal Cost of funds based Lending rate (MCLR)?
a) To enable banks to become more competitive
b) To ensure availability of bank credit at interest rates which are fair to borrowers as well as banks
c) To improve the transmission of policy rates into the lending rates of banks
d) To enable the RBI to achieve the inflation target

Answer D
 The MCLR is a reference rate or internal benchmark for the financial institution. The marginal cost of funds based lending rate defines the process used to determine the minimum home loan rate of interest. The MCLR method was introduced in the Indian financial system by the Reserve Bank of India in the year 2016. The MCLR system has replaced the base rate system that was introduced in the year 2010.

Aims Of MCLR are as follows:
 Improving transmission of the policy rate into lending rates of the banks.
 Bringing in transparency in the method followed by various banks for the determination of interest rates.
 Ensuring the availability of bank loans at rates that fair to both lenders and borrowers.
 Enabling the lenders and banks to be competitive and improve their worth in the long run.