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.
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.
Nihal Fintech reviews MCLR-linked loan portfolios and advises clients on whether switching to EBLR or doing a balance transfer would be beneficial given current rate conditions.
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