WALR

WALR

Subject : Economics

Context : The weighted average lending rate (WALR) on fresh rupee loans sanctioned by scheduled commercial banks (SCBs) fell by 183 basis points (bps), of which 112 bps cut was effected since March 2020, the Reserve Bank of India (RBI) has said.

Concept :

Weighted average lending rate (WALR)

• The Weighted Average Lending Rate (WALR) of scheduled commercial banks, is the interest rate charged on all the outstanding loans of a bank.
• Unlike, the MCLR, which is lower because it is for the newest borrower, the WALR is higher.

Marginal Cost of Lending Rate

• It is a benchmark lending rate for floating-rate loans which came into effect in 2016.
• This is the minimum interest rate at which commercial banks can lend.
• This rate is based on four components—the marginal cost of funds, negative carry on account of cash reserve ratio, operating costs and tenor premium.
• MCLR is linked to the actual deposit rates. Hence, when deposit rates rise, it indicates the banks are likely to hike MCLR and lending rates are set to go up.
• The transmission of policy rate changes to the lending rate of banks under the current MCLR framework has not been satisfactory.