The Reserve Bank will link the base rate for loans given by banks to the MCLR starting April 1, 2018 i.e. from the new financial year. The Marginal Cost of Funds based Lending Rates (MCLR) system was introduced on April 1, 2016 to tackle the problems of the Base Rate regime.
The primary reason to switch from base rate to MCLR has to be the sluggishness seen in banks' passing on the benefits of RBI rate cuts to borrowers.
