Marginal Cost of Funds based Lending Rate (MCLR)

RBI sets a minimum interest rate below which a lender is not allowed to lend. Interest paying based on MCLR is applicable to individuals who have taken loan after 1st April 2016.

The individuals who have taken a loan before 1st April 2016, those can continue paying interest based on the base rate. However, you do have a choice to switch from base rate to MCLR.

The MCLR is lower than the base rate by 5 to 50 basis points because of the influence of the RBI’s repo rate.

Current MCLR, Base Rate of All Banks in India – October 2019 ( Tenure wise MCLR )


Bank NameOvernight1 Month3 Month6 Month 1 Year2 Year3 YearBank Base Rate
Sbi7.80%7.80%7.85%8.00%8.15%8.25%8.35%8.90%
Axis Bank8.10%8.10%8.40%8.50%8.55%8.65%8.70%9.50%
ICICI8.20%8.20%8.25%8.25%8.45%0.0885
HDFC8.05%8.10%8.10%8.15%8.45%8.60%8.70%9.30%
PNB7.89%7.95%8.00%8.20%8.30%8.50%
City Bank8.05%8.35%8.35%8.45%8.45%8.50%
RBL9.15%9.20%9.45%9.65%9.95%10.15%
Kotak8.25%8.25%8.40%8.60%8.75%8.80%8.80%9.20%
Indusind Bank9.00%4.25%9.35%9.50%9.55%9.60%9.65%10.55%
Yes Bank8.00%8.75%9.20%9.40%9.70%10.25%
DBS8.05%8.20%8.25%8.30%8.30%8.70%
Bank of India8.10%8.20%8.25%8.30%8.35%9.45%
Andhra Bank7.90%7.95%8.15%8.30%8.40%9.55%
Allahabad Bank7.90%7.95%8.20%8.25%8.40%9.15%
Nainital Bank8.00%8.00%8.00%8.15%8.30%8.60%9.15%
Jammu and Kashmir Bank7.85%7.95%8.20%8.50%8.70%9.15%9.20%9.50%
Bank of Maharashtra8.15%8.25%8.40%8.50%8.50%9.50%
Canara Bank8.15%8.20%8.30%8.50%8.50%9.40%
Central Bank of India7.75%7.98%8.00%8.15%8.25%9.60%
Bandhan Bank9.67%9.69%9.73%8.10%10.11%10.61%10.78%12.00%
United Bank of India7.95%8.00%8.45%8.55%8.75%9.90%
Union Bank of India7.95%8.00%8.10%8.20%8.35%8.50%8.55%9.00%
UCO Bank7.85%8.00%8.10%8.35%8.45%9.60%
Punjab and Sind Bank8.10%8.25%8.35%8.45%8.50%9.30%9.15%9.70%
Federal Bank8.55%8.65%8.80%8.90%9.00%
South Indian Bank8.55%8.60%8.70%8.90%9.25%10.00%
Standard Chartered8.30%8.95%9.30%9.30%9.35%9.75%9.85%9.45%
Deutsche Bank8.05%8.20%8.25%8.30%8.30%9.50%
Corporation Bank7.90%8.05%8.80%8.95%8.65%9.65%
Indian Bank7.95%8.05%8.20%8.25%9.25%9.45%
Karnataka Bank8.50%8.60%8.80%8.95%9.25%10.55%
Dhan Laxmi Bank8.50%8.50%8.80%9.60%9.80%11.35%
DCB Bank9.00%9.00%9.34%10.09%10.65%10.64%
IDBI Bank7.90%8.15%8.40%8.60%8.95%9.15%9.20%9.65%
Indian Overseas Bank8.05%8.20%8.35%8.40%8.50%8.60%8.70%9.45%
Karur Vysya Bank8.35%8.35%8.60%9.15%9.45%10.10%
Bank of Baroda8.00%8.10%8.20%8.35%8.40%8.60%

What Is MCLR?

  • The Reserve Bank of India introduced MCLR in the year 2016.
  • MCLR is a replacement for the 2010 year’s base rate.
  • MCLR acts as a reference point to banks for determining the minimum home loan rate of interest.
  • Even though the home loan has to be provided mandatorily on the basis of MCLR interest rate, still there can be some exception made here only in some extreme conditions and that too only and only if the RBI allows it.

Objective Of MCLR

  1. To bring transparency in setting up of interest rates so that neither the lender nor the customer suffers because of unfair interest rates.
  2. Before the introduction of the MCLR, the process of changing the interest rate based on the change of the repo rate took time. But today the interest rates are adjusted as soon as the repo rate gets changed.
  3. The MCLR gives an opportunity for all the lenders to grow in the long term. 
  4. The lender’s competitive strength increases.

MCLR Rate In Home Loan?

  1. Any change in the repo rate and fund costs of the bank will affect the Marginal Cost of fund based Lending Rate.
  2. If MCLR increases, your floating rate based interest percentage on home loan will also increase. Similarly, IF MCLR decreases, your floating rate based interest percentage on home loan will also get decreased.
  3. Changes in MCLR doesn’t affect the Equated Monthly Instalments but it affects the tenure of the home loan.

Difference Between MCLR and Base Rate

Points of DifferentiationsMCLR Base Rate
Meaning MCLR acts as a reference rate to banks for determining the minimum home loan rate of interest that they can charge to customers.A base rate is an interest that is charged by the lender to the customers applying for the loan.
Factors that determines the rateCRR (Cash Reserve Ratio), Negative carry on Cash Reserve Ratio,marginal cost of funds,  operating costs, and tenor premium.Profits, Bank Deposit Rates, Bank Costs, Operating expenses, etc.
Dependency on the Repo RateYesNo
Loan TenureMCLR is different for different loan tenure.Base rate can change quarterly in a loan tenure.

How to calculate MCLR?

Following is the formula for calculating MCLR

Marginal cost of funds = Marginal borrowing cost x 92% + return on the net worth x 8%

The MCLR Depends on

The marginal cost of funds

It consists of the sources of the funds of the lenders.

The lender’s sources consist of savings accounts, fixed deposits, foreign currency deposit, current accounts, equity retained earnings, infused earnings, etc.

Negative carry on Cash Reserve Ratio

Banks have to compulsorily maintain some cash with RBI. The ratio of the cash amount that is mandatory to reserve is 4%.  Such idle cash doesn’t attract interest in it. And hence the cost of such funds is charged from the individual who takes the loan.

Tenor Premium

The interest rate is reset according to the period left for the loan repayment.

Operating costs of the bank

It is the expenses related to the raising of the funds. 

How To Convert Base Rate Home Loan To MCLR

There are some banks that charge a fee for converting base rate home loan to MCLR. The conversion depends on the factors consisting of the benefits that you will receive and the cost that you will have to pay if any.

Impact Of MCLR On Home Loans

Home loans have two types of interest rates known as the floating interest rate and fixed interest rate. Fixed interest rates are fixed for the entire tenure of the loan. Whereas floating interest rates are flexible. 

Now MCLR is only possible if you are having a floating interest rate type of home loan. 

So any positive or negative effects of MCLR rates are passed to only those who have taken floating interest type of home loan after 1st April 2016. 

RBI Guidelines About MCLR

  1. It is mandatory for all the banks to publish MCLR for different tenures.
  2. MCLR is only allowed to floating rate type of interest.
  3. The interest rate will only be changed on the assigned reset date.
  4. MCLR computation is based on deposits, borrowings, Negative carry on Cash Reserve Ratio, Operating costs of the bank, Tenor premium.

Prior to the introduction of the MCLR, the base rate was used to determine the interest rates to be charged on loans to customers. There was no one methodology to charge interest rates because many banks used to follow either a method of the average cost of funds or blended cost of funds or marginal cost of funds. Today MCLR has brought great transparency in the procedure of determining interest rates.