LoansFinancial Glossary
MCLR (Marginal Cost of Funds Based Lending Rate)
Definition
An internal benchmark rate that banks calculate based on their marginal cost of borrowing, operating costs, cash reserve ratio cost, and tenor premium. Introduced by RBI in 2016 to replace the base rate. MCLR-linked loans are reset periodically (every 6 months or annually) based on the bank's latest MCLR.
Why It Matters
MCLR transmission is slower than repo rate changes because banks review MCLR internally. If your loan is still MCLR-linked, consider switching to EBLR (external benchmark lending rate) for faster rate reduction when RBI cuts rates. The switching fee is typically nominal (Rs 1-5,000).