Economics • Banking & FinanceMedium
What is the primary purpose of the 'Marginal Cost of Funds based Lending Rate (MCLR)' framework introduced by the RBI for scheduled commercial banks?
A. To determine the minimum wage for bank employees based on inflation rates.
B. To improve the transmission of policy rates into lending rates charged by banks to borrowers.✓ Correct Answer
C. To calculate the capital adequacy requirements under Basel III norms.
D. To compute the statutory reserves required to be kept with the central bank.
💡 Solution & Explanation
The Marginal Cost of Funds based Lending Rate framework was instituted by the Reserve Bank of India to enhance monetary policy transmission into commercial bank lending rates. It replaced older base rate methodologies to ensure borrowers benefit transparently from policy rate cuts.
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