MCLR

Marginal Cost of Funds based Lending Rate is an internal benchmark introduced by the RBI in April 2016, below which a commercial bank cannot lend to most borrower categories. Each bank publishes a separate MCLR for overnight, one-month, three-month, six-month, and one-year tenors — your loan's contractual rate is pegged to one of these plus a spread. MCLR replaced the older Base Rate system to make rate transmission faster and more transparent.

The MCLR itself is calculated from four components: marginal cost of funds (biggest weight), negative carry on CRR, operating costs, and tenor premium. MCLR-linked loans reset only at the end of the chosen tenor — typically every 6 or 12 months — so an RBI repo cut in April may not reach your EMI until October. Practical example: a ₹60 lakh home loan at "1Y MCLR + 0.50%" with MCLR at 8.95% carries a 9.45% rate, resetting each anniversary.

For retail floating-rate loans sanctioned from 1 October 2019, RBI mandated the external benchmark framework — usually the repo rate (RLLR). Legacy MCLR loans can be switched to RLLR on request, often without penalty, which can save 25–75 bps.

Use our EMI calculator with both your current MCLR rate and the bank's current RLLR to estimate the saving from switching.