MCLR Rates

The Marginal Cost of Funds Based Lending Rates (MCLR Rates) is the minimum interest rate that banks are allowed to offer borrowers. Replacing the Base Rate system, it was introduced by the RBI in April 2016 and now acts as the benchmark for banks to set loan interest rates.

The MCLR Rate is important for borrowers as it makes the process of setting the interest rate by banks more transparent. Ensuring that borrowers benefit when the RBI reduces the repo rate (the rate at which RBI lends to commercial banks), which reduces the interest rates on floating-rate home loans.

Table of Contents:

• ⇾ Types of MCLR Rates
• ⇾ Top Banks MCLR Rates
• ⇾ MCLR Rate in Home Loans
• ⇾ RBI Guidelines on MCLR Rate
• ⇾ MCLR Rate Vs. Base Rate
• ⇾ Calculation of MCLR Rates
• ⇾ Ways To Check The Latest MCLR Rates
• ⇾ Frequently Asked Questions

Types of MCLR Rates

MCLR rates are set based on different loan tenures, and banks typically publish these rates monthly. The most common MCLR rates include:

• Overnight MCLR: This is the rate applicable for loans that need to be repaid within one day. It's usually the lowest among all MCLR rates.
• 1-Month MCLR: Applicable for loans with a repayment period of one month.
• 3-Month MCLR: Used for loans that have a three-month repayment period. It's usually slightly higher than the 1-month MCLR.
• 6-Month MCLR: This rate is for loans with a six-month repayment period, often used for short-term loans.
• 1-Year MCLR: The most common rate for home loans and other long-term loans. It's generally higher than the shorter-term MCLR rates.
• 2-Year and 3-Year MCLR: These are applicable for loans with even longer tenures, offering a fixed rate for two or three years before the next reset.

MCLR Rates by Top Banks

If you are looking to avail a home loan, knowing the MCLR rates offered by various banks is important. Comparing the MCLR rates of various banks will help you realize which bank offers the best rates, thereby helping you save money in the long run. Given below are the various banks and their MCLR rates:

MCLR Rate in Home Loans

MCLR rates are closely linked to Repo rates which is the rate by which RBI lends to the banks. When RBI lowers the Repo rate, banks can reduce their MCLR which will result in lower interest rates for those who have floating rate home loans. This means that if your home loan is linked to the MCLR rates, then any reduction in MCLR could decrease your interest rate. Thereby, reducing the loan tenure, although the Equated Monthly Instalments (EMIs) may remain the same.

However, it is essential to note that MCLR rates only affect home loans with floating interest rates. Home loans with fixed interest rates are not impacted by changes in the MCLR, meaning that the interest rate remains constant throughout the loan tenure, irrespective of any fluctuations in the repo rate or MCLR.

RBI Guidelines on MCLR Rate

As the repo rate directly impacts the MCLR rates, RBI has set a few guidelines for banks to follow with regards to MCLR rates, these are:

• Banks are required to publish their MCLR rates for different tenures (such as overnight, one month, six months, one year, etc.).
• The MCLR rate applicable on the sanction date of a floating-rate home loan will remain unchanged until the next reset date which typically ranges from 6 months to 1 year. This reset period determines when the interest rate on your loan will be recalculated based on the current MCLR.

MCLR Rate vs. Base Rate

The Marginal Cost of of Funds-Based Lending Rate (MCLR) and the Base Rate are two systems used by banks to determine the interest rates on loans. The MCLR rate was introduced to replace the Base rate to address certain limitation especially with offering the benefits of repo rate cuts by RBI. Here are the key difference between the two:

Calculation of MCLR Rates

The Marginal Cost of Funds-Based Lending Rate (MCLR) is calculated based on a complex number of factors that influence a bank's cost of funds. Understanding how MCLR is calculated is helpful as it directly impacts the interest rates on loans, especially home loans.

The MCLR rate calculation is done based on the following factors:

• Marginal Cost of Funds: This is the primary factor in calculating MCLR rate as banks borrow from various sources, including fixed deposits, savings accounts, and current accounts. The interest rates on these borrowings adds to the marginal borrowing cost. Additionally, the cost of equity, which includes both retained and infused earnings, is considered. The formula for marginal cost of funds, as prescribed by the Reserve Bank of India (RBI), is:
  Marginal Cost of Funds = Marginal Borrowing Cost x 92% + Return on Net Worth x 8%.
• Cash Reserve Ratio (CRR) and Negative Carry: Banks are required to maintain a CRR of 4%, which means they must keep 4% of their deposits with the RBI. Since banks don't earn interest on the CRR deposit, it creates a cost. MCLR calculation allows banks to include this cost, helping to balance out the expense of maintaining the CRR.
• Operating Costs: Operating costs refer to the expenses incurred by banks in running their operations, such as opening branches, paying salaries, and managing funds. These costs are not directly passed on to customers but a small percentage is included in the MCLR calculation to ensure the bank covers its operating expenses.
• Tenor Premium: The tenor premium is linked to the loan's reset period and reflects the risk of longer loan tenures. A longer reset period means a higher tenor premium, thus ensuring the MCLR rate considers the risk of different loan tenures.

Ways to Check Latest MCLR Rates

There are several ways that you can check the latest MCLR rates, here are the steps you can follow:

Bank Websites: Visit the official website of your bank. Most banks regularly update their MCLR rates in the 'Interest Rates' or 'Loan' section. You can find rates for different tenures like overnight, 1-month, 6-month, and 1-year MCLR.

RBI Website: The Reserve Bank of India (RBI) also publishes MCLR rates for all banks. Checking the RBI website can provide you with a comprehensive list of MCLR rates across various banks.

Mobile Banking Apps: Many banks offer mobile apps that include the option to check the latest MCLR rates. Navigate to the loan section to find updated rates.

Customer Care: You can call your bank’s customer care service to inquire about the latest MCLR rates. They can provide you with detailed information on the current rates for various loan tenures.

Bank Branch: Visit the nearest branch of your bank and ask the staff for the latest MCLR rates. They can provide printed information or discuss the rates in person.

Besides MCLR rates, you can also check other related topics links given below

You can also check more about other loan types from the links given below: