MCLR is the minimum lending rate below which a bank is not permitted to lend.
State-owned Canara Bank has announced a 5 basis points hike in the benchmark lending rate across various tenors, effective from November 12. This move is expected to make loans costlier for consumers. The revised marginal cost of funds-based lending rate (MCLR) will come into effect post-Diwali, with the benchmark one-year MCLR increasing to 8.75 per cent from the existing 8.70 per cent. This particular rate is instrumental in determining the interest on most consumer loans, including auto, personal, and home loans.
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In addition to the one-year MCLR adjustment, reports suggest that overnight, one-month, three-month, and six-month MCLRs have also been raised by 5 basis points each.
The marginal cost of funds-based lending rate (MCLR) is the minimum lending rate at which a bank is permitted to lend. It replaced the earlier base rate system for determining lending rates in commercial banks, instituted by the Reserve Bank of India (RBI) on April 1, 2016.
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MCLR calculation is based on loan tenure, reflecting the time a borrower has to repay the loan. It serves as an internal reference rate for banks to determine loan interest. The components of MCLR include tenor premium, the marginal cost of funds, operating cost, and negative carry-on account of cash reserve ratio (CRR).
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Notably, Canara Bank is not the only financial institution adjusting rates. HDFC Bank recently increased its MCLR by 0.05 per cent, effective from November 7. Before this, ICICI Bank and Bank of India also raised MCLR, with the new rates in effect from November 1, 2023. These adjustments by major banks indicate a broader trend of increasing interest rates, impacting borrowers as they plan their finances during the festive season.
