Question
What is/are the purpose/purposes of the `Marginal Cost of Funds based Lending Rate (MCLR)' announced by RBI?
1. These guidelines help improve the transparency in the methodology followed by banks for determining the interest rates on advances.
2. These guidelines help ensure availability of bank credit at interest rates which are fair to the borrowers as well as the banks.
Select the correct answer using the code given below.
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
Answer:
C
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Explanation:
The Marginal Cost of Funds based Lending Rate (MCLR) is a methodology introduced by the Reserve Bank of India (RBI) to determine the lending rates of banks. The purpose of MCLR is to bring transparency and fairness in the determination of interest rates on advances and ensure availability of bank credit at reasonable rates. Let's examine the statements:
Statement 1 is correct. The MCLR guidelines issued by the RBI aim to improve the transparency in the methodology followed by banks for determining the interest rates on advances. These guidelines provide a standardized framework for banks to calculate their lending rates based on their marginal cost of funds, operating costs, and tenor premium, among other factors.
Statement 2 is also correct. The MCLR guidelines aim to ensure the availability of bank credit at interest rates that are fair to both borrowers and banks. By linking lending rates to the bank's marginal cost of funds, the guidelines help align the interest rates with the prevailing market conditions and reduce the scope for arbitrary interest rate setting by banks.