This note on evolution of various regime of lending rate, and the deregulation of these rates 1. March 1981 - A broad framework of interest rates was provided with fixed rates on certain types of advances and ceiling rate on other types of advances. 2. October 1988 Fixed rate stipulations converted into floor rates with option to banks to raise the rates. 3. September 1990: 1. Discontinuation of sector-specific and programme-specific interest rate stipulations, barring a few areas like agriculture, small industries, differential rate of interest (DRI) scheme and export credit. Linking interest rate to the size of the loan (over 2 lakh) was introduced. 2. lending rates was rationalized into six size-wise slabs. 3. Banks were free to set interest rates on loans of over Rs.2 lakh with minimum lending rates prescribed by RBI. 4. April 1992 - These slabs were reduced to only four. ### Prime Lending Rate (PLR) System - 1994 1. April 1993 - After the initiation of financial sector reforms in the early 1990s, various steps were initiated to deregulate the lending rates of commercial banks. 1. The credit limit size classes of scheduled commercial banks, on which administered rates were prescribed, were reduced into three slabs in April 1993, which are: 1. advances up to and inclusive of Rs. 25,000; 2. advances over Rs. 25,000 and up to Rs. 2 lakh; 3. and advances over Rs. 2 lakh. 2. [Appendix_ Table 1.1 : Interest Rate Structure For Advances Of Scheduled Commercial Banks ](RBI_Annual%20Report_1994.pdf#page=183&selection=0,0,19,1) in RBI's Annual Report 1994 2. October 18, 1994 - banks were free to determine their own prime lending rates (PLRs) for credit limit over Rs.2 lakh, and lending interest rates were deregulated for the first time 1. RBI prescribed that banks should disclose their prime lending rates (PLRs), which will be the interest rate charged for the most creditworthy borrowers, with the approval of their boards taking into account their cost of funds, transaction cost, etc 3. [April 1995](RBI_Annual%20Report_1995.pdf#page=17&selection=288,0,297,6) - RBI  introduced a ‘loan system’ of delivery of bank credit, whereby the banks were given the freedom to charge interest rate on the ‘cash credit’ and ‘loan’ components with reference to the prime lending rate approved by their Boards. 4. October 1996 - It was made mandatory for banks, while announcing the PLR, to also announce the maximum spread over the PLR for all advances other than consumer credit. 5. Feb 1997 - Banks allowed to prescribe separate PLRs and spreads over PLRs, both for loan and cash credit components, in order to encourage borrowers to switch to loan delivery system. 6. October 22, 1997 - With regard to term loans of 3 years and above, the banks were given the freedom to announce separate Prime Term Lending Rates (PTLR), while PLR remained applicable to the loans taken for working capital and short-term purposes. So banks were permitted to have two PLRs–one for short term and the other for long term loans, and the spread above them. 1. With a view to removing the disincentive to the flow of credit to small borrowers below Rs.2 lakh, instead of prescribing a specific rate uniformly for all banks, PLR was converted as a ceiling rate on loans up to Rs. 2 lakh in April 1998. The rationale for this policy was that the PLR, being the rate chargeable to the best borrower of the bank, should be the maximum rate chargeable to the small borrowers 7. April 1999 - Banks were provided freedom to operate **Tenor-linked Prime Lending Rates (TPLRs)** upon request from banks and borrowers. So apart from 2 PLRs, banks now could also have tenor linked PLR, _i.e.,_ PLR for different maturities, and the spread above them. 8. October 1999 - Flexibility to charge interest rates without reference to the PLR on certain categories of loans/credit 9. May 25, 2000 - 10. [April 2000](RBI_MPS_200004_FY2000-01.pdf) - In the Annual Policy Statement for 2000-01, The restriction on fixed rate term loans being extended only for project loan was withdrawn. Banks were permitted to charge fixed/floating rates on all loans with credit limit of more than Rs. 2 lakh with PLR as the reference rate. 11. [April 19, 2001](RBI_Notification_20010419_Interest%20Rates%20on%20Advances_Directive.pdf) - Directive on Interest Rates on Advances 12. [April 2001](RBI_MPS_200004_FY2000-01.pdf) 1. In the Monetary and Credit Policy for the year 2001-02, RBI mentioned "in recent meetings with bankers, a request was made that the PLR should be converted into a reference or benchmark rate for banks rather than treating it as the minimum rate chargeable to the borrowers. In this context, a review of the international practices also shows that while the PLR was traditionally the lowest rate charged to the prime borrowers with highest credit rating, in recent years, the practice of providing loans even below the PLR by banks has become common" 2. Commercial banks allowed to lend at sub-PLR rate for loans above 2 lakh, to exporters or other creditworthy borrowers including public enterprises on the lines of a transparent and objective policy approved by their respective boards. So it was no longer a floor rate for loans above Rs 2 lakh. 3. For loans priced above PLR, Banks had continue declaring the maximum spread on them. 4. For loans up to Rs.2 lakh, PLR continued to remain as the ceiling 13. Since 2000 banks are also free to price credit linked to external benchmarks. However, the share of rupee loans linked to external benchmarks has been miniscule. 14. [March 9, 2002](RBI_Notification_20020309_Interest%20rates%20on%20advances_Directives.pdf) - Directives on Interest rates on advances 15. [April 2002](RBI_Group-Committee_20091020_Report%20of%20the%20Working%20Group%20on%20Benchmark%20Prime%20Lending%20Rate%20(BPLR).pdf#page=19&selection=55,0,55,10) - A system of collection of following additional information from banks and disseminating through the Reserve Bank’s website was introduced 1. maximum and minimum interest rates on advances charged by the banks; and 2. range of interest rates with large value of business 16. [July 30, 2002](RBI_Notification_20020730_Interest%20Rates%20on%20Advances_Master%20Circular.pdf) - Master Circular-Interest Rates on Advances 17. Ap 18. [April 30, 2003](RBI_Notification_20030430_Interest%20Rates%20on%20Advances%20–%20Prime%20Lending%20Rate%20and%20Spreads.pdf) - RBI asked banks in April 2003 to announce a Benchmark PLR (BPLR) with the approval of their boards. Hence, the system of tenor-linked PLR was to be discontinued. But effective date was not announced. ### Benchmark Prime Lending Rate (BPLR) - 2003 6. [April 29, 2003](RBI_MPS_200304_FY2003-04_2.pdf) - Tenor linked PLR system to be replaced by Benchmark Prime Lending Rate (BPLR) 1. With an aim of introducing transparency and ensuring appropriate pricing of loans, wherein the PLRs truly reflect the actual costs, in the Annual Policy Statement of April 2003, the Reserve Bank advised banks to announce a Benchmark PLR (BPLR) with the approval of their boards. 2. Just like PLR, Benchmark Prime Lending Rate (BPLR) was also an internal benchmark rate, that is a reference rate determined internally by the bank. 3. With this, the system of tenor-linked PLR discontinued. 4. It was made effective from November 2003. 7. [April 30, 2003](RBI_Notification_20030430_Interest%20Rates%20on%20Advances%20–%20Prime%20Lending%20Rate%20and%20Spreads.pdf) - RBI asked banks in April 2003 to announce a Benchmark PLR (BPLR) with the approval of their boards. Hence, the system of tenor-linked PLR was to be discontinued. But effective date was not announced. 8. The BPLR was seen as a reference rate and was to be computed taking into consideration: 1. cost of funds; 2. operational expenses; and 3. a minimum margin to cover regulatory requirements of provisioning and capital charge, and 4. profit margin. 8. The premia (term premia and/or risk premia) can be factored in the spread over or below the PLR. So banks could also lend below the BPLR. 1. But the dominance of sub-BPLR lending, however, defeated the very purpose for which the BPLR system was introduced. 2. The share of sub-BPLR lending was as high as 77 per cent in September 2008, concentrated at long-term tenors (above three years), rendering it difficult to assess the transmission of policy rate changes of the Reserve Bank to lending rates of banks. [^1] 9. [August 14, 2003](RBI_Notification_20030814_Master%20Circular%20-%20Interest%20Rates%20on%20Advances.pdf) - Master Circular - Interest Rates on Advances. 1. Banks were asked ( item 2 of Annexure I of above circular) to not lend below PLR in case of some loans which could be priced without reference to benchmark PLR (like consumer durable loans, residential housing loans, etc.), as RBI did not want banks to give concessional (cheaper) loans in these cases. It was later reversed on Oct 21, 2003. 10. [Nov 25, 2003](RBI_MPS_200311_Mid-Term.pdf#page=8&selection=15,1,15,34) - IBA issued operational guidelines for on the implementation of Benchmark PLR (BPLR) at RBI’s direction (the November 2003 policy review) to improve transparency in loan pricing. 11. [Oct 21, 2003](RBI_Notification_20031021_Interest%20Rates%20on%20Advances%20–%20Prime%20Lending%20Rate%20and%20Spreads.pdf) - RBI withdrew the restriction of lending below PLR on certain types of loans 12. April 2004 - Almost all banks implemented the system by April 2004 after the IBA specified the detailed guidelines. 13. In order to monitor the BPLRs of banks, the RBI had also introduced a system of collecting information from banks and publicly disseminating it in various publications. The Weekly Statistical Supplement (WSS) of the Reserve Bank of India Monthly Bulletin disseminates information on the BPLRs of five major public sector banks. The information on BPLRs and actual lending rates of SCBs is also regularly disseminated on a quarterly basis through the Reserve Bank’s website 14. [July 8, 2004](RBI_Notification_20040708_Master%20Circular%20-%20Interest%20Rates%20on%20Advances.pdf) - Master Circular - Interest Rates on Advances *(till June 30, 2004)* 15. [July 1, 2005](RBI_Notification_20050701_Master%20Circular%20-%20Interest%20Rates%20on%20Advances.pdf) - Master Circular - Interest Rates on Advances *(till June 30, 2005)* 16. [July 1, 2006](RBI_Notification_20060701_Master%20Circular%20-%20Interest%20Rates%20on%20Advances.pdf) - Master Circular - Interest Rates on Advances *(till June 30, 2006)* 17. [July 1, 2007](RBI_Notification_20070702_Master%20Circular%20-%20Interest%20Rates%20on%20Advances.pdf) - Master Circular - Interest Rates on Advances *(till June 30, 2007)* 18. [July 1, 2008](RBI_Notification_20080701_Master%20Circular%20-%20Interest%20Rates%20on%20Advances.pdf) - Master Circular - Interest Rates on Advances *(till June 30, 2008)* 19. [July 1, 2009](RBI_Notification_20090701_Master%20Circular%20-%20Interest%20Rates%20on%20Advances.pdf) - Master Circular - Interest Rates on Advances *(till June 30, 2009)* ### Base Rate System - 2010 6. [June 11, 2009](RBI_Press%20Release_20090611_Proposed%20Terms%20of%20Reference%20of%20the%20Working%20Group%20on%20BPLR%20-%20Comments%20by%20June%2019,%202009.pdf) - RBI constituted a Working Group, chaired by Shri Deepak Mohanty, the then Executive Director, Reserve Bank of India 7. [June 22, 2009](RBI_Press%20Release_20090622_Working%20Group%20on%20Benchmark%20Prime%20Lending%20Rate.pdf) - The terms of reference was finalised 8. [Oct 20, 2009](RBI_Press%20Release_20091020_RBI%20places%20on%20its%20Website%20for%20Public%20Comments%20Report%20of%20the%20Working%20Group%20on%20BPLR.pdf) - [Report](RBI_Group-Committee_20091020_Report%20of%20the%20Working%20Group%20on%20Benchmark%20Prime%20Lending%20Rate%20(BPLR).pdf) of the Working Group on Benchmark Prime Lending Rate (BPLR) was placed on the Reserve Bank’s website for public comments. >[History on evolution of BPLR in India](RBI_Group-Committee_20091020_Report%20of%20the%20Working%20Group%20on%20Benchmark%20Prime%20Lending%20Rate%20(BPLR).pdf#page=13&selection=0,0,0,29) 8. [February 10, 2010](RBI_Press%20Release_20100210_RBI%20Releases%20Draft%20Circular%20on%20Base%20Rate%20for%20Banks.pdf) - After considering the recommendations of the Group and the suggestions received from various stakeholders, RBI proposed to bring changes in the present lending rate system, as outlined in the [draft circular](RBI_Notification_Draft%20Circular_20100210_Guidelines%20on%20the%20Base%20Rate.pdf) on the Base Rate system for banks, placed for inviting comments from various stakeholders on Base Rate system. 9. [March 5, 2010](RBI_Press%20Release_20100305_Mar%2005,%202010%20Base%20Rate%20System%20from%20July%201,%202010-%20RBI%20copy.pdf) - RBI announced that the Base Rate system would be introduced from July 1, 2010. 10. ==[April 9, 2010](RBI_Notification_20100409_Guidelines%20on%20the%20Base%20Rate.pdf) - The first set of Guidelines on the Base Rate was issued==, on the basis of recommendations of the Working Group (Chairman: Deepak Mohanty) and after taking into account the views of various stakeholders and discussions with banks. [Annex](RBI_Notification_20100409_Guidelines%20on%20the%20Base%20Rate_Annex.pdf) to the circular 1. The interest rate/actual lending rate was simply the base rate $+$ borrower-specific charges, where base rate was cost of funds (from deposits, borrowed reserves, etc) $+$ returns from SLR $+$ profit %. 2. In other words, the Base Rate was the minimum interest rate of a bank below which it could not lend, except in some cases allowed by the RBI. >[Table 1](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=508#:~:text=Table%201%3A%20Evolution%20of%20Lending%20Rate%20Structure%20in%20India) in Evolution of Lending structures in India in speech 'Perspectives on Lending Rates in India' (June 14, 2020) by Deepak Mohanty, the then Executive Director,Reserve Bank of India. 11. July 1, 2010 - Banks switched on to ==‘base rate’ system== of loan pricing. 1. All categories of domestic rupee loans were priced only with reference to the Base Rate. 2. Since the Base Rate will be the minimum rate for all loans, banks were not permitted to resort to any lending below the Base Rate. 3. The aim was to bring out the transparency in bank lending rates as well as to improve monetary policy transmission. 4. Data relate to five major banks. 5. Accordingly, the stipulation of BPLR as the ceiling rate for loans up to Rs. 2 lakh was withdrawn. 6. ==With this, complete deregulation of rupee lending rates of banks==, a process that began two decades ago, was achieved. But few categories of loans could be priced without reference to the Base Rate like loans to banks’ own employees, loans to banks’ depositors against their own deposits, etc. 7. BPLR, the internal benchmark rate, introduced in 2003, was used to determine the interest rates on advances/loans sanctioned only upto June 30, 2010 8. [July 1, 2010](RBI_Notification_20100701_Master%20Circular%20-%20Interest%20Rates%20on%20Advances.pdf) - Master Circular - Interest Rates on Advances *(till June 30, 2010)* 13. [Jan 6, 2011](RBI_Notification_20110106_Guidelines%20on%20the%20Base%20Rate.pdf) - New guidelines on base rate was issued. Banks were permitted to change the benchmark and methodology any time during the initial six month period i.e. end-December 2010. This was now extended to upto June 30, 2011. 14. [February 21, 2011](RBI_Notification_20110221_Guidelines%20on%20Base%20Rate.pdf) - New guidelines on base rate was issued. 15. [July 1, 2011](RBI_Notification_20110701_Master%20Circular%20-%20Interest%20Rates%20on%20Advances.pdf) - Master Circular - Interest Rates on Advances *(till June 30, 2011) 16. August 2011 - [Box III.1-Monetary Policy Transmission after the Switchover to Base Rate](RBI_Annual%20Report_2011.pdf#page=91&selection=4,0,5,62) in RBI's Annual Report_2011 17. [September 9, 2011](RBI_Notification_20110909_Guidelines%20on%20Base%20Rate.pdf) - New guidelines on base rate was issued regarding loans under micro credit scheme of NSTFDC and various schemes of NHFDC 18. [July 2, 2012](RBI_Notification_20120702_%20Master%20Circular%20-%20Interest%20Rates%20on%20Advances.pdf) - Master Circular - Interest Rates on Advances *(till June 30, 2012) 19. August 2012 - [Box III.1-Base Rate System: An Assessment](RBI_Annual%20Report_2012.pdf#page=96&selection=4,0,5,31) in RBI's Annual Report 2012 20. [July 1, 2013](RBI_Notification_20130701_%20Master%20Circular%20-%20Interest%20Rates%20on%20Advances.pdf) - Master Circular - Interest Rates on Advances *(till June 30, 2013) 21. [September 2 , 2013](RBI_Notification_20130902_%20Base%20Rate%20–%20Revised%20Guidelines.pdf) - banks were permitted to change the benchmark and methodology any time during the initial six month period i.e. end-December 2010 which was subsequently extended on Jan 6, 2011 to upto June 30, 2011. Some banks were allowed to change the base rate methodology for up to a year since commencement of their banking operations 22. [Apr 10, 2014](RBI_Press%20Release_20140410_RBI%20releases%20Report%20on%20‘Working%20Group%20on%20Pricing%20of%20Credit’.pdf) - RBI released [Report](RBI_Group-Committee_20140410_Report%20of%20the%20Working%20Group%20on%20Pricing%20of%20Credit.pdf) on ‘Working Group on Pricing of Credit’ (Chairperson-Anand Sinha ) 23. [July 1, 2014](RBI_Notification_20140701_%20Master%20Circular%20-%20Interest%20Rates%20on%20Advances.pdf) - Master Circular - Interest Rates on Advances *(till June 30, 2014) 24. ==[Jan 19, 2015](RBI_Notification_20190119_Interest%20Rates%20on%20Advances.pdf) - Interest Rate on Advances== (Additional Guidelines) 1. Based on the recommendations of the Working Group on pricing of Credit (Chairperson-Anand Sinha), banks were advised to adhere to the additional guidelines on ‘Interest Rates on Advances’ as indicated in the [‘Annex’](https://rbi.org.in/scripts/NotificationUser.aspx?Id=9499&Mode=0#AN). 2. So the domestic rupee loans were priced only with reference to the Base Rate, subject to the conditions mentioned in circulars dated April 9, 2010, Sept 2, 2013 and Jan 19, 2015. 25. As banks had the flexibility in the way they determined the cost of funds, that is average, marginal or blended cost, it had caused opacity in the determination of lending rates by different banks and made the assessment of monetary transmission difficult. ### Marginal Cost of Funds-based Lending Rate (MCLR) System - 2016 1. [April 7, 2015](RBI_MPS_201504.pdf) - In [paragraph 22](https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=33628#P22) of the first Bi-monthly Monetary Policy Statement 2015-16, RBI stated that in order to improve the efficiency of monetary policy transmission, the Reserve Bank will encourage banks to move in a time-bound manner to marginal-cost-of-funds-based determination of their Base Rate. 2. [Sep 01, 2015](RBI_Notification_20150901_Draft%20Guidelines%20on%20Transmission%20of%20Monetary%20Policy%20Rates%20to%20Banks’%20Lending%20Rates%20–%20Base%20Rate%20Guidelines.pdf) *(draft guidelines on MCRL as new benchmark)* 1. Banks were following different methodologies for computing their Base Rate. While some use the average cost of funds method, some have adopted the marginal cost of funds while others use the blended cost of funds (liabilities) method. 2. ==It was observed that Base Rates (benchmark/reference rates) based on marginal cost of funds are more sensitive to changes in the policy rates.== 3. RBI revised the extant guidelines on computation of Base Rate as well as the methodology for determining lending rates to improve efficient transmission of Monetary Policy Rates to Banks’ Lending Rates, that is make lending rates more sensitive to policy rates.[ 3. [December 17, 2015](RBI_Notification_20151217_Interest%20Rates%20on%20Advances.pdf) - RBI issued final guidelines for pricing their advances and decided that all rupee loans sanctioned and credit limits 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 internal benchmark for interest rates on such loans 4. [Dec 17, 2015](RBI_Press%20Release_20151217_RBI%20announces%20Marginal%20Cost%20of%20Funds%20Methodology%20for%20Interest%20Rate%20on%20Advances.pdf) - Marginal Cost of Funds Methodology for Interest Rate on Advances was announced 1. Just like the BPLR, the base rate, MCLR is also an internal benchmark, and hence set by each bank for pricing of credit. 2. But unlike the BPLR and the base rate, the formula for computing the MCLR was given by the RBI. 5. [March 3, 2016](https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10295) - Master Direction - Reserve Bank of India (Interest Rate on Advances) Directions, 2016 was published *(now repealed).* With the issue of these directions, the instructions/guidelines contained in the circulars (up to Dec 17, 2015) were repealed 1. **Floating rate rupee loans** *(Benchmark + Spread)* 1. Internal Benchmark 1. All floating rate rupee loans sanctioned and renewed between July 1, 2010 and March 31, 2016 were priced with reference to the Base Rate which was the internal benchmark for such purposes 2. Internal MCLR - All floating rate rupee loans sanctioned and renewed w.e.f. April 1, 2016 would be priced with reference to the Marginal Cost of Funds based Lending Rate (MCLR) which will be the internal benchmark for such purposes subject to the other provisions. The MCLR shall comprise of: 1. Marginal cost of funds; 2. Negative carry on account of CRR; 3. Operating costs; 4. Tenor premium 2. External Benchmark loans *(from September 04, 2019)* 1. All new floating rate personal or retail loans (housing, auto, etc.) and floating rate loans extended by banks to Micro and Small Enterprises from October 01, 2019 and floating rate loans to Medium Enterprises from April 01, 2020, were to be benchmarked to one of the following: 1. Reserve Bank of India policy repo rate 2. Government of India 3-Months Treasury Bill yield published by the Financial Benchmarks India Private Ltd (FBIL) 3. Government of India 6-Months Treasury Bill yield published by the FBIL 4. Any other benchmark market interest rate published by the FBIL. 2. They can also reference other types of loans to external benchmark. Since 2000, banks are free to price credit linked to external benchmarks. However, the share of rupee loans linked to external benchmarks has been miniscule. [^1] 3. It was first proposed in Dec 2018 3. Spread - Banks shall have a Board approved policy delineating the components of spread charged to a customer. 4. Interest Rate - The actual lending rates will be determined by adding the components of spread to the MCLR 2. Fixed Rate Rupee Loans *(from March 29, 2016)* 1. fixed rate loans upto three years were to be priced with reference to MCLR, and those above three years were continue to be exempted from MCLR system. 3. Foreign Currency Advances 1. A bank shall have the freedom to determine the interest rates on advances in foreign currency as per the comprehensive policy on interest rates on advances duly approved by the Board of Directors or any committee of the Board to which powers have been delegated. 2. Benchmark (External) - They would be priced with reference to a market determined external benchmark. 3. Spread *(from Sept 4, 2019)*- Banks are free to decide the spread over the external benchmark. 4. Interest Rate - The actual lending rates shall be determined by adding the components of spread to the external benchmark 4. Exempted Loans 1. Certain types of loans (like fixed rate loans for above 3 years) were exempted from the provisions related to the benchmark and the spread. 6. [Table II.1: The Base Rate and the MCLR Methodologies – A Comparison](RBI_Group-Committee_20171004_Report%20of%20the%20Internal%20Study%20Group%20to%20Review%20the%20Working%20of%20the%20Marginal%20Cost%20of%20Funds%20Based%20Lending%20Rate%20System.pdf#page=22&selection=2,0,2,67) in the [Report](RBI_Group-Committee_20171004_Report%20of%20the%20Internal%20Study%20Group%20to%20Review%20the%20Working%20of%20the%20Marginal%20Cost%20of%20Funds%20Based%20Lending%20Rate%20System.pdf) of the Internal Study Group to Review the Working (Chairman-Janak Raj), (October 2017) 7. [March 29, 2016](RBI_Press%20Release_%2020160329_RBI%20clarifies%20its%20Directions%20on%20MCLR%20System.pdf) - RBI clarified some of the provisions in the Reserve Bank of India (Interest Rate on Advances) Directions, 2016 related to MCLR System 8. March 29, 2016 - [FAQs](https://rbi.org.in/scripts/FAQView.aspx?Id=111) on Marginal Cost of Funds based Lending Rate (MCLR) was published. 9. April 1, 2016 -  RBI instituted a new lending rate system for banks – the marginal cost of funds based lending rate (MCLR) system effective April 1, 2016 with a view to improving transmission. 1. The BPLR, the base rate and the MCLR were internal benchmarks set by each bank for pricing of credit. 2. However, unlike the BPLR and the base rate, the formula for computing the MCLR was prescribed by the Reserve Bank. 10. In April 2016, the scheme of Priority Sector Lending Certificates (PSLC) was also introduced 11. [August 2, 2017](RBI_MPS_SDRP_20170802.pdf) - The announcement of the constitution of the study group was made in the Statement on Developmental and Regulatory Policy of the Reserve Bank. RBI had observed large variations in the spreads over the MCLR, from month to month, from bank to bank and from sector to sector. 12. August 2017 - [Box III.1 MCLR, Lending Rates and Health of the Banking Sector](RBI_Annual%20Report_2017.pdf#page=94&selection=26,0,27,52) 13. ==Oct 4, 2017 - [Report](RBI_Group-Committee_20171004_Report%20of%20the%20Internal%20Study%20Group%20to%20Review%20the%20Working%20of%20the%20Marginal%20Cost%20of%20Funds%20Based%20Lending%20Rate%20System.pdf) of the Internal Study Group to Review the Working of the Marginal Cost of Funds Based Lending Rate System was published== 14. [Aug 12, 2022](RBI_Press%20Release_20220812_Aug%2012,%202022%20RBI%20Working%20Paper%20No.%2010:2022-%20Monetary%20Transmission%20in%20India%20under%20the%20Base%20Rate%20and%20MCLR%20Regimes-%20A%20Comparative%20Study.pdf) - RBI Working Paper No. 10/2022: [Monetary Policy Transmission in India under the Base Rate and MCLR Regimes- A Comparative Study](RBI_Research_WP_20220812_RBI%20WPS%20(DEPR)-%2010:2022-%20Monetary%20Policy%20Transmission%20in%20India%20under%20the%20Base%20Rate%20and%20MCLR%20Regimes-%20A%20Comparative%20Study.pdf) was published. 15. [Oct 4, 2017](RBI_Group-Committee_20171004_Report%20of%20the%20Internal%20Study%20Group%20to%20Review%20the%20Working%20of%20the%20Marginal%20Cost%20of%20Funds%20Based%20Lending%20Rate%20System.pdf) - Report of the Internal Study Group to Review the Working of the Marginal Cost of Funds Based Lending Rate System was published 16. Sept 4, 2019 - Effective this date, All new floating rate personal or retail loans (housing, auto, etc.) and floating rate loans extended by banks to Micro and Small Enterprises from October 01, 2019 and floating rate loans to Medium Enterprises from April 01, 2020, were to be benchmarked to external benchmarks **Summary** 1. The process of setting interest rates by banks has been changed through the introduction of the prime lending rate (PLR) system in 1994, the benchmark prime lending rate (BPLR) system in 2003, the base rate system in 2010 and the marginal cost of funds-based lending rate (MCLR) system in 2016. ## Regulations 1. ==Nov 28, 2025 - Reserve Bank of India (Commercial Banks – Interest Rates on Advances) [Directions, 2025](https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=13149)== 1. It superseded Reserve Bank of India (Interest Rate on Advances) Directions, 2016 *(March 03, 2016)* *(now repealed=last updated on October 1, 2025)* 2. Reserve Bank of India (Commercial Banks – Credit Facilities) [Directions, 2025](https://rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=13156) It covers following types of credit facilities: 1. Lending against Gold and Silver Collateral 2. Gold Metal Loans (GML) 3. Microfinance 4. Project Finance 5. Credit Facilities to Real Estate Sector 6. Infrastructure Financing 7. Discounting / Rediscounting of Bills 8. Acquisition Finance 9. Credit Facilities to Overseas Joint Ventures (JV) / Wholly Owned Subsidiaries Abroad and overseas Step-down Subsidiaries of Indian Companies 10. Loans Against Financial Assets 11. Finance to Non-Banking Financial Companies (NBFCs) 12. Export Credit 13. Non-Fund Based (NFB) Credit Facilities 3. Nov 28, 2025 - Reserve Bank of India (Commercial Banks – Resolution of Stressed Assets) [Directions, 2025](https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=13145) 4. Nov 28, 2025 - Reserve Bank of India (Commercial Banks – Responsible Business Conduct) [Directions, 2025](https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=13140) 5. Nov 28, 2025 - Reserve Bank of India (Commercial Banks – Managing Risks in Outsourcing) [Directions, 2025](https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=13139) 6. Nov 28, 2025 - Reserve Bank of India (Commercial Banks – Transfer and Distribution of Credit Risk) [Directions, 2025](https://rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=13151) 7. Nov 28, 2025 - Reserve Bank - Integrated Ombudsman Scheme [(RB-IOS, 2026)](https://rbidocs.rbi.org.in/rdocs/content/pdfs/SCHEME16012026_A.pdf) 8. *July 2, 2005 - Reserve Bank of India (Pre-payment Charges on Loans) Directions, 2025 (Withdrawn)* ## FAQs 1. March 29, 2016 (*last update date*) - [FAQs](https://rbi.org.in/scripts/FAQView.aspx?Id=111) on Marginal Cost of Funds based Lending Rate (MCLR) 2. Oct 1, 2025 - [FAQs](https://www.rbi.org.in/Scripts/FAQDisplay.aspx?Id=170) on the circular on 'Reset of Floating Interest Rate on Equated Monthly Instalments (EMI) based Personal Loans' ## Data Releases 1. MCRL 1. Weekly - Table "Ratio and Rates" in the WSS 2. Monthly - Press release titled "Lending and Deposit Rates of Scheduled Commercial Banks" 3. Half-Yearly - Monetary Policy Report 4. Annual - Structure of Interest Rates in - Handbook of Statistics on Indian Economy, which is an annual publication. 5. DBIE - [Structure of Interest Rates](https://data.rbi.org.in/DBIE/#/dbie/reports/Statistics/Financial%20Sector/Key%20Rates) 2. Lending Rates (WALR) 1. Quarterly BSR-1 : Outstanding Credit of Scheduled Commercial Banks ## Related Notes 1. [Monetary Policy Transmission OPEN](Monetary%20Policy%20Transmission%20OPEN.md) 2. [Deregulation of Interest Rates on Deposits](Deregulation%20of%20Interest%20Rates%20on%20Deposits.md) # References ### [[Speeches & Media Interactions|Speeches]] 1. Y.V.Reddy. (Jan 06, 2004). ==Credit Policy, Systems and Culture==. (Dr. Y.V.Reddy, Governor, RBI at the National Institute of Bank Management, ,Pune during its Annual Day Celebrations on January 6, 2004). [Link](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=152) 2. Deepak Mohanty. Jun 14, 2010. ==Perspectives on Lending Rates in India==. (Speech by Deepak Mohanty, Executive Director, Reserve Bank of India, delivered at the Bankers’ Club, Kolkata on 11th June 2010). [Link](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=508) ### [[Publications (Data Releases) & Research#Research|Research]] [[Working Paper Series (WPS)|Working Paper Series (RBI)]] 1. [May 18, 2012](https://rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=26498). RBI WPS (DEPR) : 7/2012: Measures of Nominal and Real Effective Lending Rates of Banks in India. Authors-Deepak Mohanty, A B Chakraborty and S Gangadaran. [pdf](RBI_Research_WP_20120518_RBI%20WPS%20(DEPR)%20-%207:2012-%20Measures%20of%20Nominal%20and%20Real%20Effective%20Lending%20Rates%20of%20Banks%20in%20India.pdf) 2. [Aug 12, 2022](RBI_Press%20Release_20220812_Aug%2012,%202022%20RBI%20Working%20Paper%20No.%2010:2022-%20Monetary%20Transmission%20in%20India%20under%20the%20Base%20Rate%20and%20MCLR%20Regimes-%20A%20Comparative%20Study.pdf). RBI Working Paper No. 10/2022: Monetary Transmission in India under the Base Rate and MCLR Regimes: A Comparative Study. [pdf](RBI_Research_WP_20220812_RBI%20WPS%20(DEPR)-%2010:2022-%20Monetary%20Policy%20Transmission%20in%20India%20under%20the%20Base%20Rate%20and%20MCLR%20Regimes-%20A%20Comparative%20Study.pdf) [Groups/Committees](Groups%20and%20Committees.md) 1. RBI. ([Oct 20, 2009](RBI_Press%20Release_20091020_RBI%20places%20on%20its%20Website%20for%20Public%20Comments%20Report%20of%20the%20Working%20Group%20on%20BPLR.pdf)). ==Report of the Working Group on Benchmark Prime Lending Rate (BPLR)==(Chairman-Deepak Mohanty, the then Executive Director, RBI). [pdf](RBI_Group-Committee_20091020_Report%20of%20the%20Working%20Group%20on%20Benchmark%20Prime%20Lending%20Rate%20(BPLR).pdf) 2. RBI. (Jan 21, 2014). ==Appendix Table III.3-Deregulation of Interest Rates in India==. Report of the Expert Committee to Revise and Strengthen the Monetary Policy Framework, chaired by Urjit Patel. [Link](https://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/ECOMRF210114_F.pdf) 3. RBI. (Apr 10, 2014). Report of the Working Group on Pricing of Credit. [Link](https://rbi.org.in/scripts/PublicationReportDetails.aspx?ID=764) | [pdf](RBI_Group-Committee_20140410_Report%20of%20the%20Working%20Group%20on%20Pricing%20of%20Credit.pdf) 4. RBI. (Oct 4, 2017). ==Report of the Internal Study Group to Review the Working of the Marginal Cost of Funds Based Lending Rate System== (Chairman-Janak Raj). [pdf](RBI_Group-Committee_20171004_Report%20of%20the%20Internal%20Study%20Group%20to%20Review%20the%20Working%20of%20the%20Marginal%20Cost%20of%20Funds%20Based%20Lending%20Rate%20System.pdf) ### [[Publications (Data Releases) & Research#Publications|Publications]] 1. RBI. (July 2, 2007). Master Circular - Interest Rates on Advances. 2. RBI. (July 1, 2011). Master Circular - Interest Rates on Advances 3. RBI. (August 2012). Box III.1-Base Rate System: An Assessment. RBI'S Annual Report 2012. [pdf](RBI_Annual%20Report_2012.pdf#page=96&selection=4,0,5,31) 4. RBI. (March 29, 2016). [FAQs](https://rbi.org.in/scripts/FAQView.aspx?Id=111) on Marginal Cost of Funds based Lending Rate (MCLR). [pdf](https://rbi.org.in/scripts/FAQView.aspx?Id=111) [^1]: RBI. (Oct 4, 2017). Report of the Internal Study Group to Review the Working of the Marginal Cost of Funds Based Lending Rate System. [pdf](RBI_Group-Committee_20171004_Report%20of%20the%20Internal%20Study%20Group%20to%20Review%20the%20Working%20of%20the%20Marginal%20Cost%20of%20Funds%20Based%20Lending%20Rate%20System.pdf)