What is/are the purpose/purposes of ‘Marginal Cost of Funds based Lending Rate (MCLR)’announced by RBI

What is/are the purpose/purposes of ‘Marginal Cost of Funds based Lending Rate (MCLR)’announced by RBI
  1. These guidelines help improve the transparency in the methodology followed by the banks for determining the interest rates on advances
  2. these guidelines helps ensure the availability of bank credit the interest rate which are fare to the borrowers as well as the banks
Select the correct answers using the code given below
  1. 1 only
  2. 2 only
  3. Both 1 and 2
  4. Neither 1 nor 2
Ans. C
Explanation:
MCLR guidelines by the RBI is an attempt to make banks pass on policy rate cut benefits to borrowers. The objective is to ensure better transmission, transparency and fair treatment to new and existing borrowers.
Why the question Came:
The much-awaited RBI guidelines on calculating the benchmark lending rate was launched inn December 2015. Discussed in last two Economic Surveys and in multiple RBI reports and speeches. A nice technical question which every aspirant was expected to know if following economy and banking closely. See our Economic Survey notes for details.
Sources:The Hindu, The Economic Survey, RBI Website
http://economictimes.indiatimes.com/wealth/borrow/will-rbis-new-base-rate-guidelines-help-borrowers/articleshow/50330944.cms
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