MCLR (Marginal Cost of Funds Based Lending Rate)

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Definition

MCLR was introduced by RBI in April 2016 to ensure better transmission of monetary policy changes to borrowers. It is calculated based on: marginal cost of funds, negative carry on CRR, operating costs, and tenor premium. Banks set MCLR for different tenures (overnight, 1-month, 3-month, 6-month, 1-year).

Since Oct 2019, new floating-rate retail loans must link to external benchmarks (EBLR). But millions of existing loans are still MCLR-linked and reset annually/semi-annually based on the bank’s MCLR review. MCLR-linked borrowers can switch to EBLR — often beneficial since EBLR responds faster to rate cuts.

Frequently Asked Questions

What is the difference between MCLR and EBLR? ▾
MCLR is bank-internal (based on cost of funds) and resets less frequently. EBLR links to external benchmarks like repo rate and resets at least quarterly — offering faster rate transmission.
Should I switch from MCLR to EBLR? ▾
If your MCLR rate is higher than current EBLR, switching can save money. However, EBLR also means rates increase faster when repo rate rises.
How often does MCLR reset? ▾
Depends on the reset period in your loan agreement — typically annually or semi-annually. EBLR resets at least quarterly.
Why It Matters

Millions of existing loans are still MCLR-linked with slower rate transmission. Understanding MCLR vs. EBLR helps borrowers decide if switching or transferring would save money.

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