Economics • Banking & FinanceMedium
What is the primary objective of introducing Marginal Cost of Funds based Lending Rate (MCLR) by the RBI?
A. To increase the profitability of public sector banks
B. To improve the transmission of policy rates to lending rates✓ Correct Answer
C. To replace the Cash Reserve Ratio completely
D. To promote foreign direct investment in retail banking
💡 Solution & Explanation
The Marginal Cost of Funds based Lending Rate system was introduced by the Reserve Bank of India to improve the transmission of central bank policy rates to commercial lending rates. It replaced the earlier base rate methodology to ensure greater transparency in bank interest calculations. Banking sector reforms are staple topics in economic awareness tests.
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