Marginal Cost of Lending Rate (MCLR)

Marginal Cost of Lending Rate (MCLR)

The marginal cost of lending rate (MCLR) is the internal benchmark or the minimum interest rate below which a bank cannot lend. Banks add a credit risk premium, also called spread, over and above the MCLR to calculate their actual lending rate. Banks revise their MCLR every month for different maturities or tenure such as overnight, 1 month, 3 months, 6 months and 1 year. MCLR was introduced to ensure the changes in the repo rate (rate charged by RBI from commercial banks for short term lending) are timely incorporated in the lending rates of the banks.