What is/are the purpose/purposes of ‘Marginal Cost of Funds based Lending Rate (MCLR)’ announced by RBI
- These guidelines help improve the transparency in the methodology followed by the banks for determining the interest rates on advances.
- These guidelines helps ensure the availability of bank credit the interest rate which are fair to the borrowers as well as the banks.
Select the correct answers using the code given below
- 1 only
- 2 only
- Both 1 and 2
- Neither 1 nor 2
Explanation
Statement 1 is correct
- MCLR is the minimum lending rate below which a bank is not permitted to lend, except in certain cases allowed by the Reserve Bank of India (RBI). The Reserve Bank of India (RBI) implemented the MCLR methodology (replacing the base rate Method) for setting interest rates starting April 1, 2016.
- It requires banks to determine lending rates using a clear formula based on the marginal cost of funds, operating costs, and other components. This improves transparency in how banks set interest rates.
Statement 2 is correct
- The framework ensures fair and reasonable lending rates by linking them to banks’ actual cost of funds. This helps borrowers get credit at fair rates while allowing banks to maintain profitability.
