RBI group to study MCLR regime so that your bank reduces loan rate

Voicing displeasure over banks not doing enough to reduce lending rates, the Reserve Bank of India (RBI) said an internal group would review the working of the system to improve transmission.The central bank will also explore ways to link bank lending rates directly to market-determined benchmarks

Though the marginal cost of funds-based lending rate (MCLR) system is an improvement over the base rate system, monetary transmission by banks has not been “not entirely satisfactory”, the RBI said in statement on developmental and regulatory policies

“The decision to review the MCLR system with a view to improve monetary policy transmission is a welcome move as a large section of any bank’s portfolio is still anchored to the base rate. The MCLR in its present form is grossly misused by a few players to create an artificial pricing structure,” said R P Marathe, managing director and chief executive, Bank of Maharashtra.

The MCLR was introduced in April 2016 for improving the monetary transmission. The MCLR, the internal benchmark lending rates, have to be revised monthly. This move was in response to banks failing to transfer the benefit of rate cuts by the RBI to its customers. The MCLR rates, unlike base rates, have to take the change in repo rates into consideration and revise lending rates accordingly.