The Reserve Bank of India has said that it will link the base rate with the MCLR from 1st of April this year to ensure expeditious transmission of its policy rate to borrowers. In a statement, RBI said, though it had introduced the Marginal Cost of Funds based Lending Rates (MCLR) system with effect from 1st April 2016, the Central bank observed that a large proportion of bank loans continue to be linked to Base Rate.
In a notification issued yesterday, RBI Deputy Governor NS Vishwanathan said, it has been decided to harmonize the methodology of determining benchmark rates by linking base rate to MCLR as it is more sensitive to policy rate signals. Former RBI governor Raghuram Rajan had introduced the MCLR to calculate the benchmark lending rate in another attempt to make banks pass on policy rate cut benefits to borrowers quickly and in a more transparent manner.