Economics • Banking & FinanceEasy
What is the primary objective of introducing the Marginal Cost of Funds based Lending Rate (MCLR) system by the Reserve Bank of India in April 2016?
A. To improve the transmission of policy rates to lending rates of commercial banks✓ Correct Answer
B. To completely deregulate interest rates on savings bank accounts
C. To mandate banks to maintain higher cash reserve ratios
D. To fix a uniform interest rate for all scheduled commercial banks in India
💡 Solution & Explanation
The Marginal Cost of Funds based Lending Rate system was instituted by the Reserve Bank of India in April 2016 to improve the transmission of policy repo rate adjustments to consumer and corporate lending rates. Unlike the older base rate methodology, MCLR factored in marginal funding costs.
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