From MCLR to repo-linked loans, pick lenders with low, stable spread

Agarwal points out that rate changes in the external benchmark are transmitted automatically, without being influenced by a bank's internal cost structure

The one-year median marginal cost of funds-based lending rate (MCLR) remained at 9 per cent between November and April, barring a brief rise to 9.05 per cent in February, according to data from the Reserve Bank of India (RBI). This occurred despite a 50 basis points (bps) cut in the repo rate since February this year. Around 36 per cent of floating rate loans are linked to the MCLR.

 

MCLR rate: Responds with lag 

Banks are typically quick to raise rates after repo hikes but slow to reduce them following cuts. “They are quick to respond when the policy rate