RBI to review MCLR guidelines

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The Reserve Bank is all set to review the current Marginal Cost of Funds Based Lending Rate (MCLR) guidelines, according to a report by The Economic Times.

RBI-MCLR
The RBI will review the guidelines on MCLR.

The RBI, had in its annual report for the year 2017-18 stated that it would not only review the guidelines but also review the policy involving subsidiarisation of foreign banks. According to the report, the central bank could potentially decide to scrap the MCLR system.

The current system of MCLR was introduced in April 2016, under which all floating rates are linked to it.

A report prepared by an RBI committee, had in October 2017 recommended that bank lending rates be linked to market benchmarks. This could help in creating transparency in the process.

The RBI, had in 2013, released guidelines for foreign banks to set up their subsidiaries in the country. According to the framework, foreign banks were expected to set up separate legal entities which would have a local board of directors and their own capital base. While the intention was to get foreign banks to establish local subsidiaries, the move did not generate a lot of interest, with only two banks, State Bank of Mauritius and DBS applying to open subsidiaries.

Sources: Economic Times, Money Control.

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