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What is MCLR?
If you took your home loan before October 2019, this is probably your benchmark — and you are probably paying more than the person who borrowed last week.
The short answer
MCLR is the bank's own INTERNAL benchmark — its marginal cost of funds, calculated by the bank, and not something you can audit.
It governed floating-rate loans from April 2016 to September 2019. If you borrowed then, you are probably still on it.
And you are probably paying 0.3% to 0.8% more than a new borrower at the same bank with the same risk profile.
What MCLR is
The Marginal Cost of Funds based Lending Rate — a benchmark each bank calculates for itself, from its own cost of raising money, its operating costs, and a margin.
Introduced in April 2016, replacing the even more opaque Base Rate. Superseded, for new loans, by EBLR in October 2019.
MCLR loans typically reset annually, on the anniversary of the loan.
Why the RBI replaced it
MCLR is internal. The bank calculates it. You cannot verify it.
Which meant, in practice:
• When the RBI cut rates, banks were slow — 6 to 12 months — and frequently passed on only part of the cut.
• When the RBI raised rates, transmission was noticeably prompter.
• And there was no way for a borrower to check whether they had been treated fairly, because the calculation was the bank's own.
The RBI's answer, in October 2019, was to mandate an external benchmark — one published by the RBI itself, which a bank cannot adjust.
Why you're still paying more — and it is not your fault
Two reasons, and they compound.
1. MCLR never caught up
When the RBI cut rates sharply, EBLR loans took the full benefit within a quarter. MCLR loans took a year or more — and often received only part of the cut.
Those MCLR borrowers never caught up. The gap persisted, and it is still there.
2. It started from a higher base
MCLR was set when banks' marginal cost of funds was structurally higher. Even as MCLR came down, it came down from a higher starting point than the repo rate an EBLR borrower is priced off.
A borrower who took a home loan from a large bank in 2018 on MCLR may be paying meaningfully more than someone taking the identical loan from the identical bank today on EBLR.
Same bank. Same credit profile. Same security. A worse rate — purely because of when they signed.
That is not a conspiracy; it is how the transition worked out. But it is entirely fixable, and the fix is one phone call.
Switching to EBLR
- Ask your bank what your current rate and benchmark are, and what they would offer you on EBLR today.
- Ask what the conversion fee is. It is usually a modest one-time charge — a few thousand rupees.
- Compare your current rate with the EBLR rate on offer.
- Do the arithmetic. If the gap is meaningful and you have 5+ years remaining, the switch usually pays for itself many times over.
- Or do a balance transfer to a different lender — which is free on a floating-rate loan, because RBI has banned foreclosure charges. Use the quotes as leverage with your existing bank.
A balance transfer on a floating-rate home loan costs you no foreclosure charge — RBI has banned it for individual borrowers.
Which means you can get a written offer from a competing bank and take it to your own, and ask them to match.
Banks lose money when a good borrower leaves. They will frequently match rather than lose you — and it costs you a phone call.
MCLR vs EBLR
| Base Rate | MCLR | EBLR / RLLR | |
|---|---|---|---|
| When | Before April 2016 | April 2016 – Sept 2019 | October 2019 onwards |
| Set by | The bank, internally | The bank, internally | An EXTERNAL benchmark — usually the RBI repo rate |
| Can you verify it? | No | No — you cannot audit a bank's internal cost of funds | Yes. The repo rate is published by the RBI. |
| Reset frequency | At the bank's discretion | Usually annually, on your anniversary date | At least every 3 months — mandated |
| When RBI cuts rates | You may never see it | 6–12 months, and often only partly passed on | Passed on in full, within a quarter |
| Who it applies to | Legacy borrowers | Legacy borrowers | All new floating-rate retail loans from BANKS |
Since October 2019 the RBI has required banks to link new floating-rate retail loans to an external benchmark. If you borrowed BEFORE that, you are probably still on MCLR — and probably paying more than a new borrower with your exact risk profile. That is worth checking today.
Home loan rates and the RBI's repo rate move. A page that says 'the rate is X%' is wrong within months, and quietly misleads everyone who reads it afterwards.
So we explain how the mechanism works — which does not change — and leave the number to you.
For the current repo rate, check the RBI's own website. For current home loan rates, check three or four lenders directly. Both take five minutes, and both are more reliable than anything a content site tells you.
Frequently asked questions
What is MCLR?
The Marginal Cost of Funds based Lending Rate — an internal benchmark each bank calculates for itself, used for floating-rate loans between April 2016 and September 2019. It was replaced by EBLR for new loans in October 2019, but loans originated in that window are still on it.
Why is MCLR worse than EBLR?
Because it is internal. The bank calculates it, and you cannot verify it. When the RBI cut rates, MCLR loans took 6-12 months to adjust and often received only part of the cut — while EBLR loans get the full cut within a quarter, from a benchmark the RBI publishes. MCLR borrowers never caught up, and the gap persists.
Am I on MCLR?
Probably, if you took a floating-rate home loan from a bank between April 2016 and September 2019. Check your sanction letter, or simply ask the bank which benchmark your loan is linked to — they must tell you.
How much more am I paying on MCLR?
Frequently 0.3% to 0.8% more than a new EBLR borrower at the same bank with the same risk profile — purely because of when you signed. Over a long remaining tenure that is a large amount of money.
How do I switch from MCLR to EBLR?
Ask your bank. There is usually a modest one-time conversion fee. If they are unhelpful, get a written offer from a competing lender — a balance transfer on a floating-rate home loan carries no foreclosure charge, because RBI has banned them — and take it back to your bank. They will frequently match rather than lose you.