 Credit & Risk Analyst (S.O. Post) in a Public Sector Bank.

 7 years Banking experience.

 Selected as SBI PO and also cracked IBPS PO.
 Appeared in UPSC Civil Services Mains (2017).
Academics:
 Chartered Financial Analyst (C.F.A.)
 Masters in Commerce (Accounting & Business Statistics).
 Diploma in Treasury, Investment & Risk Management.
 JAIIB & CAIIB.

Follow me on Unacademy:
https: //unacademy.com/user/Zinni
• All loans sanctioned and credit limits renewed w.e.f 1st April 2016 will be
priced based on Marginal Cost of Funds based Lending Rate (MCLR)

• All the existing borrowers with loans linked to Base Rate can continue with
base rate system till repayment of the loan. An option to switch to new MCLR
system will also be provided to the existing borrowers. However, once a
borrower of loan opts for MCLR, switching back to base rate system is not
allowed
• Fixed Rate home loans, personal loans, auto loans etc will not be linked to
MCLR

• Loans covered by government schemes, where banks have to charge interest

rates as per the scheme are exempted from being linked to MCLR
Need to introduce MCLR
• Bank used to lethargy when RBI reduce the interest rate, but act quickly
when the RBI increases the interest rate

• Calculation method of cost of fund is totally different with each

individual banks

• No such rule that when banks should update their Base Rate But after
January 2015,RBI made it mandatory to review the Base Rate at least
once in a quarter
What is MCLR?
• The minimum interest rate of a bank below which it cannot lend, except in
some cases allowed by the RBI
• An internal benchmark or reference rate for the bank
• Describes the method by which the minimum interest rate for loans is
determined by a bank - on the basis of marginal cost or the additional or
incremental cost of arranging one more rupee to the prospective borrower
• It replaces the base rate system introduced in July 2010
• RBI had set up an internal panel headed by principal advisor, Janak Raj to
improve MCLR transmission which recommended linking bank leading rates to
a market benchmark
MCLR Comprises :
Base Rate

• Minimum rate set by RBI below which bank were not allowed to lend to its
customers

• In order to enhance transparency in the credit market and ensure that banks
would pass on lower cost of fund to their customers

• Loan pricing would be done by adding base rate and a suitable spread
depending on the credit risk premium