Question

    Which of the following is correct about MCLR? i.

    MCLR is a tenure-based benchmark, not a single rate. ii. MCLR will help in faster transmission of monetary policy impact iii. RBI will publish 5 different MCLR indicative rates a bank can choose its rate from that iv. All floating rate loans are linked to MCLR
    A Only i and ii Correct Answer Incorrect Answer
    B Only ii and iii Correct Answer Incorrect Answer
    C Only i, ii and iii Correct Answer Incorrect Answer
    D Only i, ii and iv Correct Answer Incorrect Answer
    E All the above Correct Answer Incorrect Answer

    Solution

    1. Marginal Cost of Funds based Lending Rate (MCLR) has replaced the base rate system. 2. Marginal cost of funds is a key component in calculating MCLR. Changes in key rates like repo rate, which alter marginal cost of funds, will impact MCLR. Thus MCLR will help in faster transmission for monetary policy 3. MCLR is a tenure-based benchmark, not a single rate. Banks have to publish at least five MCLR rates across the overnight, one-month, three-month, six-month and one-year tenures. 4. The final lending rate offered by the banks is arrived at by adding the 'spread' to the MCLR rate. 5. All floating rate loans are linked to MCLR. 6. Existing borrowers with loans linked to base rate can continue with them till maturity or switch to the MCLR system. However, once a borrower opts for MCLR, they can't switch back.

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