MCLR is introduced by RBI, to the banks and financial institutions, in order to help them decide interest rates for loans on the basis of the current lending rate (repo rate) as defined by the RBI from time-to-time. It represents the minimum interest rate criteria of a bank below which the bank cannot lend except in some exclusive cases where RBI allows the banks/FIs to do so. Based on the current mclr, a bank decide the minimum lending rate for their loan products, be it personal loan, home loan, car loan or education loan etc.
The primary reason to introduce MCLR rate is to make the lending rate of the banks/financial institution more transparent for a borrower and link borrowers to the benefits of repo rate. Earlier, interest rates were linked to Base rate which used to create a layer on how banks/FIs calculate the interest rates for a borrower.
The current interest of any type of loan or credit limit it linked to MCLR. Hence, by knowing the current MCLR of a bank or financial institutions, the borrowers can calculate the minimum interest rates of the bank especially in case of floating rate loans.
HDFC Bank MCLR Rates
SBI Bank MCLR Rates
ICICI Bank MCLR Rates
Axis Bank MCLR Rates
Yes Bank MCLR Rates
Indusind Bank MCLR Rates
Capital First MCLR Rates
Citibank MCLR Rates
Kotak Mahindra Bank MCLR Rates
Standard Chartered Bank MCLR Rates
PNB MCLR Rates
Bank of Baroda MCLR Rates
IDBI Bank MCLR Rates
RBL Bank MCLR Rates
Bank of India MCLR Rates
Bandhan Bank MCLR Rates
Federal Bank MCLR Rates
Indian Bank MCLR Rates
Andhra Bank MCLR Rates
Corporation Bank MCLR Rates
Syndicate Bank MCLR Rates
HSBC Bank MCLR Rates
MCLR vs. Base Rate
- The primary difference in MCLR and Base Rate is that the base rate is mainly linked to the marginal profit of the bank, whereas MCLR rate is mainly link to the marginal cost of funds.
- MCLR is linked to repo rate which is being controlled by the RBI unlike base rate which were controlled by the banks/FIs itself. So, if the RBI decides to lower the repo rate, interest rates linked to MCLR would go also become cheaper to the borrower as compared to base rate where the borrower would have still be paying the same amount.
How to Calculate MCLR Rates?
Since, MCLR rate is linked to the four main factors, marginal cost of funds, tenure premium, operational cost, and negative carry on cash reserve ratio account. A borrower can understand MCLR rate by knowing these four factors. Although, banks and financial institutions publish their mclr rates each quarter.
Marginal Cost of Funds
Marginal cost of funds is calculated based on two elements, majority of marginal cost of the loan amount, and portion of return on the net-worth. The marginal cost of funds can be calculated using a simple formula, given below.
- Marginal cost of funds = (92% of the Marginal cost of borrowings) + (8% of the Return on networth)
Operation cost is what banks and financial institutions has to bear in order to raise the funds for lending. However, it doesn’t include the service charges being recovered by the borrower at the time of loan processing.
Banks and Financial institutions calculate interest rates based on the periodic mclr rates which is further calculated based on the premium calculated for a certain period of time. It can be overnight, 1 month, 3 months, 6 months, 1 month and any period of more than 1 year which bank seems fit as per their lending process. The tenure premium tends to be same for all kind of loans for a given period.
Negative Carry on Cash Reserve Ratio
The negative carry on cash reserve ratio is the difference between actual cash reserve ratio and the negative carry on the mandatory cash reserve ratio. This situation happens if the return on loan amount is zero, and affects mandatory Statutory Liquidity Ratio Balance (SLR).
Based on these four main components, a borrower can understand how a bank or financial institution struct their MCLR rates for any period of lending.