Bank of Maharashtra announced MCLR after the changes made in repo rate by RBI
The RBI reduced the key repo rate recently, and after a day public sector Bank of Maharashtra decided to keep the one-year MCLR at 8.60 percent with effect from June 7, 2019.
The MCLR or Marginal cost of fund based lending rate was implemented by RBI on April 1, 2016, to determine the lending rates for loans and is an internal reference rate for banks based on which banks decide the interest rates to be charged on loans and for the same, they include the additional cost of arranging additional rupee for the applicant. Most customer loans, such as auto, personal, and home loans, are priced on the basis of MCLR.
MCLR is an improved version of the base rate. It is a risk-based approach to calculate the final lending rate for borrowers. It includes unique factors like the marginal cost of funds rather than the overall cost of funds. Marginal costs also consider the repo rate, which previously was not included in the base rate. Earlier, loan tenure was not at all an essential factor to determine the rates, but now the banks should consist of a tenor premium which means that they can charge a higher rate of interest for long term loans.After the implementation of MCLR, the interest rates will be determined according to the relative risks faced individually by customers. Earlier, when RBI reduced the repo rate, the banks took so long to reflect effects in the lending rates for the borrowers. Under the MCLR regime, banks should adjust their interest rates as soon as the repo rate changes are introduced.
Banks can disclose the MCLR or the internal benchmark within one month, three months, overnight or a year as the bank feels like doing it. Loans which are not linked to the MCLR includes special loan schemes by the government of India such as Jan Dhan Yojana, fixed-rate loans above three years, loans to the bank’s employees and loans against customers deposits.
The overnight MCLR will attract an interest of 8.15 percent, which is less by 0.05 percent while an equal margin slashed the three-month tenor rate to 8.40 percent earlier.The Reserve Bank in its policy announced to cut the repo rate -- at which RBI lends cash to banks -- by 0.25 percent to 5.75 percent to increase demand and to boost the economy.
The RBI Governor Shaktikanta Das told that banks were slow in transmitting the benefits despite successive rate cuts to the customers.Indian economic growth is figured to have slowed to a five-year low of 6.8 percent in 2018-19 because which The RBI has also cut down the GDP expansion forecast to 7 percent for the current fiscal earlier which was 7.2 percent because of the slowdown in domestic activities.