- Base Rate:
- Introduced in July 2010.
- Minimum rate below which Scheduled Commercial Banks cannot lend.
- Calculation based on average cost of deposits/funds.
- Also includes cost of CRR/SLR, operational costs, and return on net worth.
- An internal benchmark, varying by bank.
- MCLR (Marginal Cost of Funds based Lending Rate):
- Introduced from April 2016, replacing Base Rate.
- Calculation based on marginal cost of deposits/funds.
- Also includes cost of CRR/SLR, operational costs, and tenor premium.
- Banks review and publish MCLR monthly.
- An internal benchmark, varying by bank.
- Aims for faster transmission of repo rate changes.
- External Benchmark Rate:
- Mandatory for new floating rate personal/retail loans and MSME loans from Oct 2019.
- Banks choose from repo rate, 3-month T-bill yield, 6-month T-bill yield, or FBIL rates.
- An external benchmark, not controlled by individual banks.
- Aims for faster and more transparent transmission of policy rates.
| Feature | Base Rate | MCLR | External Benchmark Rate |
|---|---|---|---|
| Calculation Basis | Average cost of funds | Marginal cost of funds | External market rates (e.g., repo rate) |
| Nature | Internal benchmark | Internal benchmark | External benchmark |
| Transparency | Less transparent | Improved transparency | Most transparent |
| Policy Transmission | Slow | Faster than Base Rate | Fastest |
| Mandatory For | All loans (before MCLR) | All loans (before EBLR) | New floating rate retail/MSME loans |