Flushed with deposits, state-owned Bank of Baroda on Tuesday cut benchmark lending rates by 0.2 per cent. The new marginal cost of funds based lending rate (MCLR) will be effective November 1, BoB said. The bank has reduced (MCLR) by 0.2 per cent from 9.25 per cent to 9.05 per cent for 1-year tenure, it said.
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For three months, MCLR has been reduced by similar percentage points to 8.95 per cent and for six months, the rate will be 9 per cent. On Monday, another leading public sector lender reduced its MCLR rate by 0.05 per cent on select maturities. Banks have moved to MCLR as their new benchmark lending rate from June, replacing the base rate system for new borrowers.
It is calculated on the marginal cost of borrowing and return on net worth for banks. It was introduced by RBI to ensure fair interest rates to borrowers as well as banks. It also seeks to address the regulator’s primary objective of expediting monetary policy transmission along with augmenting uniformity and transparency in the calculation methodology of lending rates. MCLR rates are revised every month.