RBI announces Marginal Cost of Funds Methodology to calculate base rate

RBI announced a new Marginal Cost of Funds Methodology to calculate base rate. The guidelines come into effect from April 1, 2016. These measures are expected to improve transparency in the methodology followed by banks for determining interest rates on advances. Some of the guidelines are:

• All rupee loans sanctioned and credit limits renewed with effective from April 1, 2016 will be priced with reference to theMarginal Cost of Funds based Lending Rate (MCLR) which will be the internal benchmark for such purposes.
• Banks will review and publish the lending rate every month on a pre-announced date
• Actual lending rates will be determined by adding the components of spread to the MCLR.