Which customers will be affected
The biggest impact of this decision by the bank will be on customers who have taken out home, car or personal loans. This will increase their EMI in the months to come. According to data through December 2021, MCLR loans accounted for the highest share (53.1%) of the bank loan portfolio. According to bankers, the rise in the MCLR could continue as the rise in the repo rate has increased the cost of funds for banks. Banks review the cost of the loan each month and pass on the increased cost to customers.
What is MCLR
The Reserve Bank of India (RBI) introduced the MCLR system in 2016. It is an internal benchmark for any financial institution. In the MCLR process, the minimum interest rate for the loan is fixed. The MCLR is the minimum interest rate at which a bank can lend. Simply put, Marginal Cost of Funds Based Lending Rates (MCLR) is a methodology established by the Reserve Bank of India used by commercial banks to set the interest rate on loans.
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