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ARTICLE · 28 SEPTEMBER 2016

MCLR – The New Phenomena For Interest Rates!

Juris Corp
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The need to regulate interest rates in a manner that the market continues to function in an efficient way was felt decades ago.

IndiaFinance and Banking
Veena Sivaramakrishnan
Veena Sivaramakrishnan
Saurabh Sharma
Saurabh Sharma

The need to regulate interest rates in a manner that the market continues to function in an efficient way was felt decades ago. Towards this objective, various measures have been proposed and adopted. It can be safely stated that the regulations on interest rate monitoring have been evolving and moving with time. A quick recap of the key changes in this regime (especially for banks in India) is as under:

  • 1960 – Concept of minimum rate of interest was introduced
  • 1990 – Interest rates were linked to size of loan
  • 1994 – Minimum lending rates was prescribed for loans < Rs 2 lakh. For loans > Rs 2 lakh, these had to be linked to the Benchmark Prime Lending Rate (BPLR)
  • 2000s – RBI identified that the BPLR system fell short of its original objective and was not bringing sufficient transparency to lending rates as banks could lend below BPLR

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