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8 February 2018
 |
| Home loan(The Total Investment & Insurance
Solutions) |
The Reserve Bank of India (RBI) in its
monetary policy announcement on Wednesday kept key interest rates at hold, but
its observations on Marginal Cost of Funds based Lending Rates (MCLR) may bring
cheers to Pre-April 2016 home loan borrowers. The Total Investment & Insurance Solutions
The home loan rates of the Pre-April 2016
have not been revised by banks in line with market rates. These home loan
borrowers, who were stuck in the older base rate regime, will now be linked to
the current market-linked benchmark.
In its policy statement, RBI has asked banks
to link the base rate to MCLR from April 1, 2018 to ensure expeditious
transmission of its policy rate to borrowers.
RBI introduced the Marginal Cost of Funds
based Lending Rates (MCLR) system with effect from April 1, 2016 on account of
the limitations of the Base Rate regime. The
Total Investment & Insurance Solutions
It is observed, however, that a large
proportion of bank loans continue to be linked to the Base Rate despite the
Reserve Bank of India highlighting this concern in earlier monetary policy
statements.
"Since MCLR is more sensitive to policy
rate signals, it has been decided to harmonise the methodology of determining
benchmark rates by linking the Base Rate to the MCLR with effect from April 1,
2018," RBI said
Former RBI governor Raghuram Rajan 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.
Under the base rate and BPLR, banks were
following individual methodologies for computing the minimum rate at which they
could lend. Under the MCLR, RBI asked all banks to follow the marginal cost of
funds method to arrive at their benchmark lending rate.The Total Investment & Insurance Solutions
MCLR is calculated after factoring in banks'
marginal cost of funds (largely, the interest at which they borrow money),
return on equity (a measure of banks' profitability), and negative carry on
account of cash reserve ratio.
RBI will issue necessary instructions in this
regard by the end of next week.The Total
Investment & Insurance Solutions
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