MCLR Regime For Lending Interest Determination May Be Phased Out

As the marginal cost of funds based lending rate does not seen to provide any effective change of rates, the review of MCLR guidelines is on the offing. Also, this shall be done in order to foster competition as well as re-orient the Indian banking industry.

Managing Director of SBI is quoted in one of the leading daily report as saying, "World over, the bank rates have moved to an external benchmark which leads to uniform pricing. Currently banks in India calculate based on their internal benchmark which can be disputed and leads to a difference in rates between banks. This is likely to be changed".
So, it is highly likely that the system may be ruled out for lending rates determination less than 3 years after it was first introduced.

Since April 2018, banks have been asked to harmonise all base rate based lending to MCLR regime.

The new regime is more closely related to bank deposit rates. The central bank so far has attempted to put lending rates such that they show proper transmission of key policy rates to loan borrowers.

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