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What is/are the purpose/purposes of ‘Marginal Cost of Funds based Lending Rate (MCLR)’ announced by the RBI?

  1. 1.These guidelines help improve the transparency in the methodology followed by the banks for determining the interest rates on advances.
  2. 2.These guidelines help ensure the availability of bank credit at interest rates which are fair to the borrowers as well as the banks.

Select the correct answers using the code given below:

  1. A.1 only
  2. B.2 only
  3. C.Both 1 and 2
  4. D.Neither 1 nor 2
▶ Answer & Explanation

Correct answer: C. Both 1 and 2

The introduction of MCLR by the Reserve Bank of India aimed to bring greater transparency to the way banks calculate their lending rates. It also sought to ensure that lending rates reflected the actual cost of funds for banks, thereby making them fairer for both borrowers and the banks themselves. This replaced the previous Base Rate system, which was criticized for its opacity.

Source: UPSC gs1 2016

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