MCLR is the standard lending rate that banks have to set and publish on different maturities. The significance of MCLR is that it has replaced the base rate which has functioned as the standard lending rate from 2010 onwards. As in the case of base rate, banks can’t lend below the MCLR rate. At the same time banks can adopt spreads or a higher interest rate above the MCLR depending upon the credibility of the borrower. The MCLR came into effect from April 1, 2016 onwards. As per the RBI instruction, banks have to declare MCLR for different maturities on a monthly basis.
overnight,
one-month,
three-month,
six-month and
one year
Loan of a specific maturity is benchmarked against a particular that specific MCLR rate. In the case of housing loans, they are benchmarked against one-year MCLR.
As per the RBI direction, fixed rate loans upto three years shall be priced with reference to MCLR. Whereas the fixed rate loans of tenor above three years will continue to be exempted from MCLR system.
