RAS question
The MCLR (Marginal Cost of Funds based Lending Rate) was introduced from:
Correct answer: (D) April 2016.
The Marginal Cost of Funds based Lending Rate, or MCLR, was introduced for rupee loans sanctioned and credit limits renewed from April 1, 2016.
Explanation
MCLR was introduced from April 1, 2016, when RBI's final guidelines made it the internal benchmark for pricing all rupee loans sanctioned and credit limits renewed from that date. The shift mattered because MCLR was built around the marginal cost of funds, making banks' lending-rate methodology more transparent and more responsive to policy-rate transmission than the earlier base-rate approach. RBI also specified that MCLR would be tenor-linked, with actual lending rates determined by adding spreads to the relevant MCLR. Existing loans linked to the Base Rate could continue until repayment or renewal, while borrowers could shift to MCLR-linked loans on mutually acceptable terms. October 2019 belongs to the later move towards external benchmark linked lending rates for new retail loans, not to MCLR's introduction.
Why the other options are wrong
- (A) April 2015 is too early; RBI's MCLR guidelines came into effect from April 1, 2016, so MCLR began a year later.
- (B) October 2019 refers to the later external benchmark linked lending rate requirement for new retail loans, not to the start of MCLR.
- (C) April 2014 predates RBI's MCLR framework; the cited guidelines made MCLR applicable only from April 1, 2016.
Concept
This tests monetary-policy transmission through bank lending-rate benchmarks, a recurring RAS economy theme because RBI rate changes matter only when they pass through to borrowers. MCLR is also asked because it sits between the older Base Rate system and the later external benchmark regime.