• The Reserve Bank of India (RBI) is yet to mandate banks to allow customers who signed up for loans in the erstwhile ‘Base Rate’ regime and who are paying higher rates, to shift to the current ‘MCLR’ structure, which is  lower than the base rate.
• In the sixth bi-monthly policy review of 2017-­18, RBI had said the base rate would be linked to MCLR from April 1. 

• According to the RBI’s own assessment, ‘a large proportion’ of loans is still linked to the base rate. A base rate customer can shift to the MCLR only by paying a fee.
• Millions of customers are paying a higher interest rates on home and auto loans, among others, in effect ensuring that public sector banks avoid further losses.
• An internal study by the banking regulator has found that if banks offer their customers a lower interest rate, public sector banks will incur a whopping Rs 40,000 crore loss.
• Public sector banks have reported huge losses in the previous financial year. Asking them to shift their customers to MCLR could impact their interest income further.
• State ­run banks are already reeling under huge losses due to a rise in non-­performing loans. 
• Nineteen of India’s 21 state-­run lenders reported losses in 2017-18, wiping out almost all of the government’s capital injections during the year.
• After the introduction of MCLR, it was expected that the existing base rate ­linked credit exposures shall also migrate to MCLR system. 
• It is observed, however, that a large proportion of bank loans continue to be linked to the base rate despite the Reserve Bank highlighting this concern.
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• Base rate is the standard interest rate to be followed by commercial banks in India since 2010. 

• It has made the banks not to give loans below the stipulated base rate except to the exempted categories.
• Base rate should be declared by every bank and they are changing it in accordance with the change in the economy and the policy signals (Repo) by the RBI.
• From 2016 onwards, the RBI shifted to MCLR regime as standard interest rate regime for commercial banks and provided fresh guidelines. Hence base rate’s relevance has been declined since the launch of MCLR.

• According to the MCLR regulation, banks have to use the MCLR methodology in calculating and setting their base rate.

• Under MCLR, cost for the funds is calculated on the basis of marginal cost.
• Following are the main components of MCLR.
1. Marginal cost of funds;
2. Negative carry on account of CRR;
3. Operating costs;
4. Tenor premium.

Source