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    Question

    Consider the following statement about Marginal Cost of Funds based Lending Rate (MCLR)?

    I. It is the mechanism of determining commercial bank lending rates.

    II. It is the minimum lending rate below which a bank is not allowed to lend.

    III. The MCLR system superseded the previous base rate mechanism.

    Which of the statement above is/are correct?

    A 1 only Correct Answer Incorrect Answer
    B 2 only Correct Answer Incorrect Answer
    C 3 only Correct Answer Incorrect Answer
    D 1 and 2 both Correct Answer Incorrect Answer
    E All are correct Correct Answer Incorrect Answer

    Solution

    The MCLR (Marginal Cost of Funds based Lending Rate) is the minimum lending rate below which a bank is not allowed to lend. The MCLR system superseded the previous base rate mechanism in determining commercial bank lending rates. The MCLR system uses marginal cost of funds, tenor premium, operating costs and cost of carry in CRR to determine the lending rate. The Reserve Bank has imposed a penalty of Rs 27.5 lakh on Punjab & Sind Bank for non-compliance with certain directions issued by it on external benchmark-based lending. A statutory examination of Punjab & Sind Bank revealed non-compliance with the directions, inter-alia, to the extent the bank linked certain floating rate retail loans and floating rate loans to micro and small enterprises, extended by it after October 1, 2019, to MCLR instead of an external benchmark.

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