UPSC General Studies Solved Paper - General Studies-2016

  • question_answer
    What is/are the purpose/purposes of the 'Marginal Cost of Funds based Lending Rate (MCLR)' announced by RBI?
    1. These guidelines help to improve the transparency in the methodology followed by banks for determining the interest rates on advances.
    2. These guidelines help to ensure availability of bank credit at interest rates which are fair to the borrowers as well as the banks.
    Select the correct answer using the codes given below

    A)  Only 1             

    B)  Only 2

    C)  Both 1 and 2    

    D)         Neither1nor 2

    Correct Answer: C

    Solution :

    Exp. [c] The Reserve Bank of India has brought a new methodology of setting lending rate by commercial banks under the name Marginal Cost of Funds based Lending Rate (MCLR). It has modified the existing base rate system from April 2016 onwards. As per the new guidelines by the RBI, banks have to prepare Marginal Cost of Funds based Lending Rate (MCLR) which will be the internal benchmark lending rates. Based upon this MCLR, interest rate for different types of customers should be fixed in accordance with their riskiness. The base rate will be now determined on the basis of the MCLR calculation. The MCLR should be revised monthly by considering some new factors including the repo rate and other borrowing rates. Specifically the repo rate and other borrowing rates that were not explicitly considered under the base rate system.

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