Tuesday, August 16, 2016

New Lending Rate system a boon for mid- sized banks

The Marginal Cost of Funds based Lending Rate (MCLR) system could become a tool for expanding business as it gives an opportunity to offer lower rates in short-term maturities, opening up a new market which was so far not within the reach of lenders. The key difference between MCLR and the
previous base rate regime is that the new rates are divided into different baskets corresponding to bank deposits. So banks will have an overnight MCLR, a one-month rate, a three-month, six month and one year rate at which it can price its loans. The only difference is that the loans have to be re-priced based on the deposit basket which they are linked to, unlike rates in the base rate which used to move when the bank used to change its rates.

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