MCLR (Marginal Cost of Funds-based Lending Rate) is the internal benchmark interest rate that scheduled commercial banks in India use as the floor for lending. Introduced by the RBI in April 2016, it replaced the base-rate system and is computed using a bank’s marginal cost of funds, operating costs, tenor premium, and negative carry on CRR.
For loans linked to MCLR, the actual loan rate is MCLR + spread, where the spread depends on borrower credit profile and loan type.
Since October 2019, RBI has required new floating-rate retail loans to be linked to an external benchmark (typically the repo rate), but many existing loans remain MCLR-linked.