As part of the financial sector liberalisation, all credit related matters of banks including charging of interest have been deregulated by the Reserve Bank of India (RBI) and are governed by the banks' own lending policies. With a view to enhancing transparency in the methodology followed by banks for determining interest rates on advances and the efficiency of monetary policy transmission, from 1 April 2016, banks are required to sanction all their advances with reference to marginal cost of fund-based lending rates (MCLR).
Banks shall have to provide an option to the customers to switch to the MCLR from Base rate/Benchmark Prime Lending Rate (BPLR) and this should not be treated as a foreclosure of existing facility.
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