How MCLR is different from the base rate?

Answer 1

After reading many articles I gained knowledge about MCLR and the difference between MCLR and Base Rate. I am sharing my views here on MCLR and Base Rate, if I missed some points so please let me know about it, MCLR means: The Reserve Bank of India has brought another approach of setting loaning rate by business banks under the name Marginal Cost of Funds based Lending Rate (MCLR). It has adjusted the current base rate framework from April 2016 onwards. The MCLR ought to be updated month to month by thinking of some as new components including the repo rate and other borrowing rates. Particularly the repo rate and other borrowing rates that were not unequivocally thought to be under the base rate framework. According to the new rules, banks need to set five benchmark rates for various tenure or time periods ranging from overnight (one day) rates to one year. Now the point come that How MCLR is different from base rate? The base rate or the standard lending rate by a bank is calculated on the premise of the following factors: 1. Cost for the funds (interest rate given for deposits), 2. Operating expenses, 3. Minimum rate of return (profit), and 4. Cost for the CRR (for the four percent CRR, the RBI is not giving any interest to the banks) On the other hand, the MCLR is comprised of the following are the main components. 1. Marginal cost of funds; 2. Negative carry on account of CRR; 3. Operating costs; 4. Tenor premium It is obvious that the CRR costs and operating expenses are the normal components for both base rate and the MCLR.