Explained: Difference between repo rates, MCLR, base rate and prime lending rate2 min read 04 Apr 2021, 05:47 PM IST
RBI wanted banks to pass on the benefit of lower interest rates to customers when it reduces policy rates.
For this reason, RBI recently introduced a mechanism that is the most transparent until now–external benchmark-based lending rates.
Borrowers had long complained that lenders were quick to increase interest rates on home loans when the Reserve Bank of India (RBI) increased policy rates. However, when the central bank would lower policy rates, lenders would decrease rates at a much slower pace for existing customers. RBI wanted to fix this.