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.
Show answer
Answer: C. Statement 1 is correct: MCLR (from April 2016) made banks' method of setting loan rates more transparent. Statement 2 is correct: it aimed to make credit available at rates fair to both borrowers and banks, and to pass on policy rate changes faster. So both 1 and 2.
Watch for: Students think a rule fair to borrowers cannot also be fair to banks.
Why the other options are wrong
- A. Wrong because fair interest rates were also an aim of MCLR.
- B. Wrong because transparency was a stated aim of MCLR.
- D. Wrong because both are stated purposes in RBI's guidelines.
Source to check: RBI, Master Direction 'Interest Rate on Advances', 3 March 2016, and MCLR circular of 17 December 2015 (rbi.org.in)
Answer from the official UPSC key. Written and fact-checked by AI against the official key. Spotted a mistake? Report it.