a)
Internal Benchmark
i.
All
rupee loans sanctioned and renewed w.e.f. April 1, 2016 will be priced with
reference to the Marginal Cost of Funds based Lending Rate (MCLR) which
will be the internal benchmark for such purposes.
ii.
The
MCLR will comprise of:
a.
Marginal
cost of funds;
b.
Negative
carry on account of CRR;
c.
Operating
costs;
d.
Tenor
premium.
iii.
Marginal Cost of funds
The
marginal cost of funds will comprise of Marginal cost of borrowings and return
on networth.
Negative
carry on the mandatory CRR, which arises due to return on CRR balances being
nil, will be calculated as under:
Required
CRR x (marginal cost) / (1- CRR)
The marginal cost of funds arrived at
(iii) above will be used for arriving at negative carry on CRR.
v.
Operating Costs
All
operating costs associated with providing the loan product, including the cost
of raising funds will be included under this head.
vi.
Tenor premium
These
costs arise from loan commitments with longer tenor. The tenor premium will be
uniform for all types of loans for a given residual tenor.
vii.
Since
MCLR will be a tenor linked benchmark, banks shall arrive at the MCLR of a
particular maturity by adding the corresponding tenor premium to the sum of
Marginal cost of funds, Negative carry on account of CRR and Operating costs.
viii. Accordingly,
banks shall publish the internal benchmark for the following maturities:
a.
overnight
MCLR,
b.
one-month
MCLR,
c.
three-month
MCLR,
d.
six
month MCLR,
e.
One
year MCLR.
Banks have the
option of publishing MCLR of any other longer maturity.
b)
Spread
i. Banks
should have a policy delineating the components of spread charged to a customer
which shall include principles:
a. To determine the quantum of each component of
spread.
c.
To
delegate powers in respect of loan pricing.
ii.
All
banks shall adopt the following broad components of spread:
a.
Business strategy
The
component will be arrived at taking into consideration the business strategy,
market competition, embedded options in the loan product, market liquidity of
the loan etc.
b.
Credit risk premium
The
credit risk premium representing the default risk should be arrived at based on
an appropriate credit risk rating/scoring model and after taking into
consideration customer relationship, expected losses, collaterals, etc.
iii.
The
spread charged to an existing borrower should not be increased except on
account of deterioration in his credit risk profile. Such deterioration should
be supported by a full-fledged risk profile review of the customer.
iv.
This
stipulation is not applicable to loans under consortium / multiple banking
arrangements.
c)
Interest Rates on Loans
i. Actual
lending rates will be determined by adding the components of spread to the
MCLR. Accordingly, there will be no lending below the MCLR of a particular
maturity for all loans linked to that benchmark
ii.
The
reference benchmark rate used for pricing the loans should form part of the
terms of the loan contract.
d)
Exemptions from MCLR
i.
Loans
covered by schemes specially formulated by Government of India.
ii. Working
Capital Term Loan (WCTL), Funded Interest Term Loan (FITL), etc. granted as
part of the rectification/restructuring package.
iii. Loans
granted under various refinance schemes formulated by Government of India or
any Government Undertakings. Interest rate charged on the part not covered
under refinance should adhere to the MCLR guidelines.
iv.
The
following categories of loans can be priced without being linked to MCLR:
(a) Advances to banks’
depositors against their own deposits.
(b) Advances to
banks’ own employees including retired employees.
(c) Advances granted
to the Chief Executive Officer / Whole Time Directors.
(d) Loans linked to
a market determined external benchmark.
(e)
Fixed
rate loans granted by banks. However, in case of hybrid loans where the
interest rates are partly fixed and partly floating, interest rate on the
floating portion should adhere to the MCLR guidelines.
e)
Review of MCLR
i.
Banks
shall review and publish their Marginal Cost of Funds based Lending Rate (MCLR) of different maturities every month on a pre-announced date.
ii.
However,
banks which do not have adequate systems to carry out the review on a monthly
basis, may review their rates once a quarter upto March 31, 2017. Thereafter, they
should adopt the monthly review of MCLR as above.
f)
Reset of interest rates
i.
Banks
may specify interest reset dates on their floating rate loans. Such reset dates
may either be linked to the date of sanction or to the date of review of MCLR.
ii.
The
Marginal Cost of Funds based Lending Rate (MCLR) prevailing on the day of
sanction will be applicable till the next reset date, irrespective of the
changes in the interim period.
iii.
The
periodicity of reset shall be one year or lower. The exact periodicity shall
form part of the terms of the loan contract.
g)
Treatment of interest rates linked to
Base Rate charged to existing borrowers
i.
Existing
loans and credit limits linked to the Base Rate may continue till repayment or
renewal, as the case may be.
ii.
Banks
will continue to review and publish Base Rate as hitherto.
iii.
Existing
borrowers will also have the option to move to the Marginal Cost of Funds based
Lending Rate (MCLR) linked loan at mutually acceptable terms.
h)
Time frame for implementation
All
the banks should move to the MCLR based pricing, with effect from April
1, 2016.
Based on RBI
Circular dt 17/12/15. Please visit www.rbi.org.in for any further clarification
if required….. Poppy
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