Economics • Banking & FinanceMedium
What is the primary objective of introducing 'Marginal Cost of Funds based Lending Rate (MCLR)' by the RBI for commercial banks?
A. To ensure that lending rates are completely insulated from external repo rate changes
B. To improve the transmission of monetary policy signals to the lending rates offered to ultimate borrowers✓ Correct Answer
C. To allow banks to determine loan interest rates entirely based on quarterly net profit margins
D. To fix a uniform interest rate across all scheduled commercial banks for retail housing loans
💡 Solution & Explanation
The Marginal Cost of Funds based Lending Rate system was introduced by the Reserve Bank of India to improve the transmission of monetary policy signals to the retail lending rates charged by commercial banks. Options suggesting complete insulation from repo rates or arbitrary profit-based rates contradict the core objective of transparent benchmark-linked pricing.
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