1. 3-year fixed rate loans to be based on MCLR

3-year fixed rate loans to be based on MCLR

The Reserve Bank of India (RBI) on Tuesday said that fixed-rate loans only up to three years shall be priced according to Marginal Cost of Funds based Lending Rate...

By: | Mumbai | Updated: March 30, 2016 1:27 AM

The Reserve Bank of India (RBI) on Tuesday said that fixed-rate loans only up to three years shall be priced according to Marginal Cost of Funds based Lending Rate (MCLR), while fixed-rate loans of other tenors will continue to be exempted from the MCLR system. In December last year, the central bank had exempted fixed loans of all tenors from being linked to MCLR as the benchmark for determining interest rate.

RBI had also allowed banks to reckon balances of deposits and other borrowings outstanding as on the previous day of review for computing marginal cost of funds. However, on Tuesday, the regulator said that banks will have the option to reckon the outstanding balances of deposits and other borrowings as on any day, not more than seven calendar days, prior to the date from which the MCLR becomes effective.

“The chosen time lag shall be maintained consistently for a period not less one year,” it said. In another clarification to its earlier circular, RBI said that the tenor of the MCLR shall depend on the tenor of the funds in the single-largest maturity bucket, provided it is more than 30% of the entire funds reckoned for determining the MCLR or the weighted average tenor of two or more maturity buckets that together account for more than 30%, if no single maturity bucket accounts for more than 30% of the funds.

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