Saturday, 6 May 2017

MCLR- (Marginal Cost of Funds based Lending Rate)

Marginal Cost of Funds based Lending Rate
Ø  All rupee loans sanctioned and credit limits from 1 April 2016 will be priced with MCLR which will be the internal benchmark

Ø  The MCLR will be a tenor linked internal benchmark.
Ø  Actual lending rates will be determined by adding components of spread to the MCLR
Ø  Bank will review and publish their MCLR of different maturities every month on a pre-announced date   
Ø  Banks may specify interest dates on their floating rate loans. They will have the option to offer loans with reset dates linked either to the date of sanction of the loan/credit limits or to the date of review of MCLR
Ø  The periodicity of reset shall be one year or lower
Ø  The MCLR prevailing on the day the loan is sanctioned will be applicable till the next reset date, irrespective of the changes in the benchmark during the interim period 
Ø  Existing loans and credit limits linked to the base rate may continue till repayment or renewal, as the case may be. Existing borrowers will also have the option to move to the MCLR linked loan at mutually acceptable terms
MCLR will comprise
Ø  Marginal cost of funds-Marginal cost of funds will comprise of Marginal cost of borrowings and return on net worth
Ø  Negative carry on account of CRR-Negative carry on the mandatory CRR which arises due to return on CRR balances being nill. Required CRR*(marginal cost)/(1-CRR)
Ø  Operating costs-All operating costs associated with providing the loan product including cost of raising funds will be included under this.
Ø  Tenor premium-The cost arise from loan commitments with longer tenor

Bank shall publish the internal benchmark  for different maturities-
Ø  Overnight MCLR
Ø  One-month MCLR
Ø  Three month MCLR
Ø  Six month MCLR
Ø  One year MCLR

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