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People looking to apply for home loans are always searching for options that are more beneficial to them. A couple of years ago, a new benchmark called MCLR, which stands for Marginal Cost-based Lending Rate, was introduced. This rate is even lower than the base rate fixed by the RBI. However, only current borrowers with floating home loan rate interest can switch to MCLR. It was introduced to make loans that have a fair interest rate for both lenders and borrowers. MCLR also helps in making the lending process more transparent. The Reserve Bank of India (RBI) has made it mandatory for banks to fix a minimum of 5 MCLR rates. The five rates are for – a year, half a year, three months, a month, and overnight. NBFCs and independent banks have the freedom to fix as many MCLR rates as they desire. Since banks cannot afford to perform a monthly analysis, analysis of MCLR rates is done on a quarterly basis. MCLR differs from the base rate in the sense that it does not depend on repo rates f...

Reverse Repo Rate is one of the many tools at the disposal of the Reserve Bank of India. Reverse Repo Rate is basically a tool of Monetary Policy that the RBI uses to control liquidity and inflation. RBI borrows money for short term from banks, and Reverse Repo Rate is the interest rate paid on that. Reverse Repo Rate is the “reverse” or opposite of Repo Rate, the latter being the interest at which banks borrow money for short term from the RBI. As compared to the Reverse Repo Rate, Repo Rate is higher. Thus RBI gets money in times of distress, and the banks enjoy the benefits of good returns, everybody wins. Reverse Repo Rate finds numerous applications. An attractive Reverse Repo Rate invites banks to deposit money to the RBI to enjoy special gains. This causes a limit to the money supply in the market, resulting in the strengthening of the Rupee and gaining control over inflation. This also checks the liquidity in the banking system. Moreover, since Reverse Repo Rate appea...

The RBI looks after the monetary policy in India. To do that, RBI uses several financial tools like repo rate, bank rate, etc. Both MCLR and repo rates play a vital role in maintaining a smooth flow of fiscal policies in India. When the commercial banks borrow loans from the RBI, the interest rate that is imposed on the banks by RBI is called the repo rate. On the other hand, a bank can not lend money below the MCLR rate. Although, both MCLR and repo rate work with the same objective, still there are some major differences. Generally, the repo rate is regulated by RBI to increase or decrease the cash flow in the monetary system. However, MCLR is increased by the bank if the repo rate is increased. Changes in repo rate affect the area of the economy, but a change in MCLR only affects the people who want to take a loan. An increase of the Repo rate depends on the cashflow of the whole system while MCLR is increased by the bank depending on factors like operation funds, repayment tenur...

RBI has recently reduced the repo rate to 5.15%. This reduction has shifted the RBI’s stance from calibrated tightening to neutral. Determination of Repo Rate RBI makes its monetary policies based on the Consumer Price Index and inflation. Repo rate is the rate at which banks borrow money from RBI against government securities. An increase in repo rate discourages banks from availing the loan, while decreases in repo rate encourage them to avail loan from RBI. Controlling inflation is the central aspect behind making any changes in the repo rate . The effect of repo rate cut falls on all entities, be it companies, individuals, or firms. Effect on Companies Lower repo rate means lower borrowing rates. This makes it cheaper for companies to avail loan from banks and expand their business. Effect on Individuals Individuals usually celebrate the reduction of repo rate, as the general thought process is, lower the repo rate lower will be the interest rate on loan. However, it is...