MCLR Rate: Full Form, Meaning and Home Loan Impact

MCLR full form is Marginal Cost of Funds based Lending Rate. It is the internal benchmark banks have used to price loans sanctioned from 1 April 2016. New floating-rate home loans from banks have been linked to an external benchmark such as the repo rate since 1 October 2019. MCLR still applies to older loans: SBI's 1-year MCLR is 8.85% from 15 October 2026.

What MCLR means

MCLR is a reference rate that each bank calculates from its own cost of raising money. A home loan linked to MCLR is priced as MCLR plus a spread. If your loan is linked to the 1-year MCLR of 8.85% with a spread of 0.30%, your rate is 9.15%.

RBI introduced MCLR through its directions of 17 December 2015. All rupee loans sanctioned and credit limits renewed from 1 April 2016 were to be priced against it. It replaced the base rate system for new loans.

How banks compute MCLR

Under RBI's Commercial Banks – Interest Rates on Advances Directions, 2025, MCLR has four parts:

1. Marginal cost of funds: the cost of the bank's latest borrowings (deposits and other borrowings) plus the return on its net worth.
2. Negative carry on CRR: the cost of money banks must keep with RBI as the cash reserve ratio, which earns no return.
3. Operating costs: the cost of running the lending business.
4. Tenor premium: an extra charge for lending over a longer period. This is why the 1-year MCLR is higher than the overnight MCLR.

Banks must review and publish MCLR for each maturity every month, on a pre-announced date. They must publish at least the overnight, 1-month, 3-month, 6-month and 1-year MCLR, and may publish longer tenors. Most home loans on MCLR are linked to the 1-year MCLR.

Current 1-year MCLR of major banks

The figures below were read from each bank's own MCLR page.

For these three banks, the 1-year MCLR sits 0.45 to 0.70 percentage points above the bank's repo-linked benchmark. Your actual rate on either system depends on the spread in your loan agreement. For current home loan offers, see home loan interest rates.

MCLR reset period

The reset period is how often your loan rate is reset to the bank's latest MCLR.

• RBI rules say the periodicity of reset "shall be one year or lower".
• The reset period must match the MCLR tenor your loan is linked to. A loan linked to the 1-year MCLR resets once a year; one linked to the 6-month MCLR resets every six months.
• The bank sets reset dates either from the date of first disbursement or from the MCLR review date.

The result is a lag. Suppose your loan is linked to the 1-year MCLR and resets every March. If the bank cuts MCLR in April, your rate does not change until the next March. The same lag applies when rates rise.

The spread is also protected. RBI rules let a bank raise the spread for an existing MCLR borrower only if the borrower's credit risk profile deteriorates, backed by a full review.

Why new home loans are linked to EBLR or RLLR, not MCLR

On 4 September 2019 RBI noted that the pass-through of policy rate changes to lending rates under MCLR had not been satisfactory. It directed banks to link all new floating-rate personal or retail loans (housing, auto and others) and floating-rate loans to MSMEs to an external benchmark from 1 October 2019.

Banks call the result EBLR (external benchmark lending rate), RLLR (repo-linked lending rate) or a similar name. The permitted benchmarks are:

• the RBI policy repo rate (currently 5.50%);
• the Government of India 3-month Treasury bill yield published by FBIL;
• the Government of India 6-month Treasury bill yield published by FBIL;
• any other benchmark market interest rate published by FBIL.

A bank must use one benchmark uniformly within a loan category. The rate must be reset at least once every three months. The credit risk premium can change only when the borrower's credit assessment changes substantially, as agreed in the loan contract. Other spread components can be changed once in three years.

How to switch from MCLR to EBLR

RBI's 2025 Directions say existing loans on base rate, BPLR or MCLR continue until repayment or renewal. They also give these borrowers a way out:

• Floating-rate term loan borrowers who are eligible to prepay without prepayment charges can switch to the external benchmark without any charges or fees, except reasonable administrative or legal costs.
• The rate after the switch must be the same as the rate the bank charges a new loan of the same category, type, tenor and amount.
• Other existing borrowers can switch on mutually acceptable terms.
• A switch is not treated as foreclosure of the existing loan.

Most home buyers fall in the first group. RBI's Pre-payment Charges on Loans Directions, 2025 (2 July 2025) bar prepayment charges on floating-rate loans to individuals for non-business purposes, for loans sanctioned or renewed from 1 January 2026. For an older loan, check the prepayment clause in your loan agreement.

Steps to switch:

1. Check your sanction letter or latest loan statement for the benchmark ("1Y MCLR + x%").
2. Ask the bank for the rate it offers new home loans of your profile and loan size on the external benchmark.
3. Submit a written conversion request at your home branch. Bank of Baroda, for example, asks borrowers to contact their base branch for conversion from MCLR to BRLLR.
4. Ask for the conversion charges in writing and check that they are limited to administrative or legal costs if you are eligible under RBI rules.
5. Sign the supplementary agreement and confirm the new rate on your next statement.

Worked example: what a switch can save

Take ₹40 lakh outstanding with 15 years (180 EMIs) left. These rates are illustrative.

The saving holds only while the gap between the two rates holds. An EBLR loan also moves up faster when the repo rate rises, as it did by 25 basis points on 7 October 2026. You can rerun the numbers on the EMI calculator. If you plan to reduce the rate further with part-payments, use the prepayment calculator.

MCLR: common questions

What is the full form of MCLR?

Marginal Cost of Funds based Lending Rate.

Can a bank still give a new floating-rate home loan on MCLR?

No. Since 1 October 2019 RBI requires new floating-rate retail loans from banks, including home loans, to be linked to an external benchmark.

How often does my MCLR home loan rate change?

At each reset date, which is once a year for a loan linked to the 1-year MCLR.

Is the switch from MCLR to EBLR free?

For borrowers eligible to prepay without charges, RBI allows only reasonable administrative or legal costs. Ask the bank for the exact amount in writing.

For more on how floating rates move, see floating rate of interest.

Sources: RBI Commercial Banks – Interest Rates on Advances Directions, 2025 (28 November 2025): https://www.rbi.org.in/scripts/BS_ViewMasDirections.aspx?id=13149 ; RBI press release on MCLR guidelines, 17 December 2015: https://rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=35749 ; RBI Interest Rate on Advances Directions, 2016: https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10295 ; RBI press release on external benchmark lending, 4 September 2019: https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=48070 ; RBI Pre-payment Charges on Loans Directions, 2025: https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=12878&Mode=0 ; SBI MCLR: https://sbi.bank.in/web/interest-rates/interest-rates/mclr ; SBI home loan rates (EBLR): https://sbi.bank.in/web/interest-rates/interest-rates/loan-schemes-interest-rates/home-loans-interest-rates-current ; Bank of Baroda retail loan rates: https://bankofbaroda.bank.in/interest-rate-and-service-charges/retail-loans-interest-rates ; PNB MCLR and RLLR: https://pnb.bank.in/interst-rate-on-advances-linked-to-mclr.html