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MCLR — Marginal Cost of Funds Based Lending Rate
The minimum interest rate below which banks cannot lend, determined by the bank's cost of funds. Replaced the Base Rate system in 2016.
MCLR is set by each bank individually based on their marginal cost of funds. Loans are priced as MCLR + spread. MCLR-linked loans reset periodically (monthly, quarterly, or annually depending on the loan agreement) — meaning rate changes pass through with a lag.
For retail borrowers, the RBI has now mandated external benchmark-linked rates (EBLR) for most floating rate loans, which means repo rate changes pass through much faster than MCLR. Check your loan agreement to know if you're on MCLR or EBLR.
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