State Bank of India which is the largest lender of India has decide to cut down its Marginal Cost of Fund based Lending Rate across all loan products by 90 basis points. This is a good news for borrowers and is expected to improve the cash flow and investment climate in the economy. The step was Logical as due to demonetisation banks have received huge amount of deposits from the public and most of that deposit lies in savings account.￼
What is Marginal Cost of Fund based Lending Rate ??
MCLR came into effect from April 2016 onwards. It replaced the old system of Benchmark Prime Lending Rate (BPLR). MCLR is that interest below which the banks cannot lend with some exceptions allowed by Reserve Bank of India. MCLR replaces BPLR for effective transmission of policy rate changes so that the effect of Monetary Policy changes is swiftly felt. In the old BPLR methodology there were variations is the methods of fixing interest rates across different banks. The introduction of MCLR has served the purpose of creating a levelling field across different banks as far as interest rates are concerned.