RBI raps MCLR, moots external benchmark
4 Oct 2017 10:50 PM IST
Mumbai: The Reserve Bank on Wednesday flayed lenders for keeping interest rates high and flagged concerns over base rate and marginal cost of fund-based lending rate (MCLR), saying these have not improved monetary transmission.
An internal RBI group also suggested switching over to an external benchmark in a time-bound manner so that better rates are available to borrowers.
"The RBI study group has observed that internal benchmarks such as the base rate/MCLR have not delivered effective transmission of the monetary policy," RBI said in a report on Wednesday.
The group was constituted by RBI to study various aspects of the MCLR system from the perspective of improving the policy transmission.
RBI introduced MCLR on April 1, 2016 after finding that the then prevailing base rate had failed to achieve the objectives of easier and faster policy transmission. Before the MCLR was rolled out, the banks were following a more rigid base rate system, which came into force on July 1, 2010 replacing the banks' prime lending rate.
The study group submitted its report on September 25.
"Arbitrariness in calculating the base rate/MCLR and spreads charged over them has undermined the integrity of the interest rate setting process," the study group has observed.
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