What is MCLR?
MCLR (Marginal Cost of Funds-based Lending Rate) is the minimum interest rate at which a bank can lend, prescribed by RBI in 2016 to improve monetary policy transmission. Many older retail and corporate loans are still linked to MCLR.
| Meaning | MCLR (Marginal Cost of Funds-based Lending Rate) is the minimum interest rate at which a bank can lend, prescribed by RBI in 2016 to improve monetary policy transmission. Many older retail and corporate loans are still linked to MCLR. |
|---|---|
| Category | Banking |
| Related Laws | RBI MCLR Directions, 2016 |
| Who Uses It | Banks, borrowers |
| Why It Matters | Floor for loan pricing on legacy loans. |
MCLR explained in plain English
A practitioner's view written for borrowers and advisors — not a textbook definition.
MCLR (Marginal Cost of Funds-based Lending Rate) is the minimum interest rate at which a bank can lend, prescribed by RBI in 2016 to improve monetary policy transmission. Many older retail and corporate loans are still linked to MCLR.
In practice, MCLR is used most often by banks, borrowers. Each of them sees the term from a slightly different angle: borrowers care about protection and outcomes, lenders care about classification and recovery, regulators care about consistency and disclosure.
The legal anchor for MCLR is RBI MCLR Directions, 2016. RBI master directions, the SARFAESI Act 2002, the RDB Act 1993 and the IBC 2016 commonly interplay, depending on the loan size, security and stage of stress.
Why does it matter? Floor for loan pricing on legacy loans. For a stressed borrower, getting this concept right early often saves several months of penal interest, legal cost and credit-score damage.
A real example: A home loan priced at 1-year MCLR + 25 bps spread. The mechanics may look complex, but the underlying logic — the bank wants closure, the borrower wants a fair outcome — is straightforward once the right framework is in place.
If you are facing a situation involving MCLR, the safest first step is a structured case review with a senior ex-banker who has handled comparable matters across banks and ARCs in India.
Where you'll encounter MCLR
Whenever a loan moves from "Standard" to "stressed", MCLR is one of the words that starts appearing in notices, bank emails and lawyers' opinions.
Sanctioning committees, recovery teams and risk officers use MCLR to classify accounts, decide provisioning and approve resolution paths.
MCLR appears in pleadings, securitisation applications, OAs, Section 7/9 petitions and SARFAESI writs as part of the dispute record.
When stressed loans are sold to ARCs or special-situations investors, MCLR is used in term sheets, assignment agreements and due-diligence reports.