The Reserve Bank of India (RBI) has decided to link bank’s base rate to Marginal Cost of Funds based Lending Rates (MCLR) starting from the new financial year.
In a bid to ensure better solutions to problems concerning Base Rate Regime, MCLR was introduced on April 1, 2016.
It was expected that introduction of MCLR with the existing Base Rate connected to the loans and other credit exposures were suppose to get automatically synced with the MCLR system, but that did not happen.
“It is observed, however, that a large proportion of bank loans continue to be linked to the Base Rate despite the Reserve Bank highlighting this concern in earlier monetary policy statements. Since MCLR is more sensitive to policy rate signals, it has been decided to harmonize the methodology of determining benchmark rates by linking the Base Rate to the MCLR with effect from April 1, 2018”, says an RBI, in its official communiqué.
The details of this linkage and its impact on the existing borrowers will be available only after the harmonisation report.