Why was there a need to move from base rate lending system to MCLR system? Discuss in this
context the effectiveness of MCLR system in improving the transmission effects of monetary policy.
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The need to move from base rate lending system to MCLR system was due to the following reasons-
- MCLR considers marginal funds rather than total funds which is beneficial for customers. It includes the repo rate which wasn't the case in the base rate system.
- In MCLR, the rates are put immediately in effect and this allows the RBI to take faster and better policy decisions.
- It eases the process of borrowing loans and offers rate cuts. This also ensures transparency between banks and customers.
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