BANKING AFFAIRS

Detailed explanation-1: -In other words, the spread components cannot be negative. The guidelines specify that MCLR calculated using methodology prescribed shall correspond to the tenor of funds in the single largest maturity bucket provided it is more than 30% of the entire funds reckoned for determining the MCLR.

Detailed explanation-2: -Cost of borrowings: Based on the cost of borrowings, the RBI has determined the following formula for calculating MCLR: MCLR = (Marginal borrowing cost * 92%) + (Return on net worth * 8%)

Detailed explanation-3: -MCLR is calculated based on the loan tenor, i.e., the amount of time a borrower has to repay the loan. This tenor-linked benchmark is internal in nature. The bank determines the actual lending rates by adding the elements spread to this tool. The banks, then, publish their MCLR after careful inspection.

Detailed explanation-4: -What is/ are the purpose/ purposes of the ‘Marginal Cost of Funds based Lending Rate (MCLR)’ announced by RBI? 1. These guidelines help improve the transparency in the methodology followed by banks for determining the interest rates on advances.

Detailed explanation-5: -(viii) Since MCLR will be a tenor linked benchmark, banks shall arrive at the MCLR of various maturities by incorporating the corresponding tenor premium/discount to the sum of Marginal cost of funds, Negative carry on account of CRR and Operating costs.