What is MCLR?
The MCLR rate is known as the reference rate or internal benchmark for financial organisations. The MCLR rate defines the minimum home loan rate of interest. This method was first introduced by the Reserve Bank of India in 2016. It replaced the base rate system which was in vogue from 2010 to 2016. Let us understand more about what is MCLR rate.
MCLR rate and repo rate are closely linked together along with the fund cost of banks. So, if the repo rate changes it affects the home loan's floating rate of interest. when a bank brings down the marginal costs of funds based lending rate, it will bring down the floating rate of interest. Although this will not impact equated monthly installments, it will impact the tenure of the loan.
To calculate the marginal cost of the fund-based lending rate, we need to check all the borrowing sources of the bank. This includes fixed deposits, current accounts, savings accounts, etc. You can check out the rate of interest in the borrowing sources of the bank to calculate the marginal borrowing cost. The formula to calculate the MCLR is introduced by the Reserve Bank of India. Check out the formula below:
Marginal cost of funds = Marginal borrowing cost x 92% + return on the net worth x 8%
I hope you understand what is MCLR rate now.
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Authors Of The Question
What is MCLR rate?
Tapomoyee Das
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2022-02-28T20:38:56+00:00 2022-02-28T20:38:58+00:00Comment
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