Internal benchmark lending rates used by banks to price loans: the Base Rate (the older floor below which a bank could not lend) and the Marginal Cost of Funds based Lending Rate (MCLR), its 2016 successor tied to the marginal cost of funds.
- The Base Rate replaced the old Benchmark Prime Lending Rate (BPLR) in July 2010 to make loan pricing more transparent.
- The MCLR, in force from April 2016, prices loans off the marginal (latest) cost at which a bank raises funds, plus operating cost, tenor premium and the cost of maintaining the CRR.
- Both are internal benchmarks; to improve transmission of concept monetary policy, the RBI later mandated external benchmark lending rates (EBLR), often linked to the concept repo rate, for new retail and small-business loans from October 2019.
- The shift from Base Rate to MCLR to EBLR reflects the effort to make changes in the policy rate reach borrowers faster.
- Banks publish MCLR for several tenors; floating-rate loans reset with the chosen benchmark.
The chronology (BPLR to Base Rate to MCLR to external benchmark) and the idea of monetary-policy transmission are standard banking-reform points.
Base Rate and MCLR (internal benchmarks set by the bank) versus the external benchmark / repo-linked rate (set off an outside reference); the policy concept repo rate is not the lending rate a customer pays.
Internal loan-pricing benchmarks: Base Rate (2010), then MCLR (2016), now moving to external repo-linked rates for better transmission.