| Marginal Cost of Lending Rate (MCLR) | External Benchmark Lending Rate (EBLR) |
| Linked ot banks’ cost of funds | Linked to RBI’s lending rate |
| Takes 4-6 months to move after RBI rate cut | After the announcement of RBI rate cut initiative is taken instantly |
| RBI rate cuts are not fully passed on to borrowers | Rate cuts are immediately passed on |
| Changes are made annually for most banks | Changes are made in every three months |
| Resets by 5-10 bps | Resets by 25 bps |
| Low volatility | High Volatility |
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The two terminology used most frequently in the financial industry are Marginal Cost of Long-Term Funds Based Lending Rate (MCLR) and External Benchmark-linked Lending Rate (EBLR). However, these are two different concepts. Let's look at the difference between MCLR and external benchmark rate below.
What is the difference between EBLR and MCLR?
| MCLR | EBLR |
|---|---|
The marginal cost of funds, operating expenses, tenor premium, and negative carry-on account of cash reserve ratio (CRR) of the banks are the foundations of the internal benchmark lending rate known as the MCLR. |
A market-determined percentage, including the repo rate, the treasury bill rate, or any other benchmark issued by Financial Benchmarks India Pvt Ltd (FBIL), is connected to the EBLR. |
The banks update the MCLR once a month, and it needs to catch up to changes to the banks' fund costs and repo rates. |
The banks update the EBLR at least once every three months, which allows them to reflect changes in the repo rate and market rates more promptly. |
Banks are able to charge various interest rates for multiple loan tenors due to MCLR. |
There is no tenor-linked differentiation in EBLR. |
To replace the base rate system, this was implemented. |
Adopted to take the place of the MCLR system and improve the dissemination of monetary policy. |
To make wise decisions on economic strategy, you must be able to distinguish between these two concepts. I hope you found this helpful.
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MCLR and EBLR are nothing but the benchmark rates that a bank charges on loans. It is important that you understand the EBLR and MCLR meanings and difference. If you are planning to avail of any type of loan, be sure you know about this and ask the bank official about it in case of any doubt. Since I have learned about this recently, let me share the MCLR and EBLR meaning with their differences here-
What are the differences between MCLR and EBLR?There are a number of differences between MCLR and EBLR like-
MCLR |
EBLR |
MCLR is determined by taking into account the bank's marginal cost of fundslike cost of deposits, operating expenses etc |
EBLR is based on an external benchmark rate that is not within the bank's control |
The MCLR is reviewed periodically, typically on a monthly basis. |
The EBLR has no such review tenure |
The purpose of MCLR is to ensure the availability of bank loans at rates that fair to both lenders and borrowers |
The purpose of EBLR is to ensure faster transmission of changes in policy rates by the RBI to borrowers |
So there is no one MCLR and EBLR difference but many. Currently, EBLR is what the banks are following. MCLR got replaced by EBLR so that the lending process gets easy and the
lending rate goes directly with the bank policies.
This is the basic EBLR and MCLR meaning and list of differences I can remember as of now.
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Authors Of The Question
Difference between MCLR and EBLR
Vamsi
12778 Views
3 Answers
2 Year
2022-10-02T23:59:34+00:00 2023-02-14T20:35:40+00:00Comment
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