MCLR (Marginal Cost of Funds-based Lending Rate)
MCLR is an internal benchmark some banks use to price loans. It tends to move slowly and at the lender's discretion, so rate cuts can take time to reach borrowers.
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The Marginal Cost of Funds-based Lending Rate (MCLR) is an internal benchmark that banks use to set loan interest rates. It is built from a bank’s own cost of funds, operating costs and a tenure premium, and each bank publishes its own MCLR for different reset periods.
Because MCLR is internal and reset only at fixed intervals (often every 6 or 12 months), changes in the RBI’s policy rate can take a long time to show up in your EMI. When the central bank cuts rates, MCLR-linked borrowers may wait months to feel the benefit, and the pass-through is at the bank’s discretion. This slow transmission was a key reason the RBI, from October 2019, mandated that most new floating-rate retail loans be tied to an external benchmark such as the repo rate — see RLLR.
If your loan is still on MCLR, it is worth checking whether switching to a repo-linked rate would help, keeping in mind any fees. Our comparison of MCLR vs repo-linked home loans walks through the trade-offs.
Worked example. On a ₹50,00,000 loan over 20 years, a 0.5% difference in rate is worth about ₹3,82,832 in total interest — so slow MCLR transmission of a cut is real money sitting on the table.
Figures are estimates; confirm your bank’s current MCLR and reset date with your lender. Try the home loan calculator and read how the interest rate affects your EMI to see the impact.