What is the difference between base rate and MCLR?

Some of the differences between base rate and Marginal Cost of Lending Rate (MCLR) are given in the below table

Base Rate

Marginal Cost of Lending Rate (MCLR)

Base Rate does not depend on the repo rates changed by RBI

MCLR depends on the repo rates changed by RBI

Base Rate is based on the average cost of funds.

MCLR is based on incremental/marginal cost of funds.

Base rate is calculated by considering profit margin or minimum rate of return.

MCLR is calculated considering tenor premium.

You can read about The Reserve Bank of India: Functions and Composition in the given link.

Further readings:

  1. Non Performing Assets (NPA) – Facts for UPSC GS-III
  2. Monetary Policy – Objectives, Roles and Instruments

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