What is/are the purpose/purposes of the ‘Marginal Cost of Funds based Lending Rate (MCLR)’ announced by RBI? 1. These guidelines help improve the transparency in the methodology followed by banks for determining the interest rates on advances. 2. These guidelines help ensure availability of bank credit at interest rates which are fair to the borrowers as well as the banks. Select the correct answer using the codes given below:

Both statements are correct, so the answer is C. RBI introduced MCLR in December 2015, effective 1 April 2016, to replace the base rate system.

• Statement 1 is correct. Banks must disclose the components of MCLR: marginal cost of funds, negative carry on CRR, operating costs and tenor premium. This lets borrowers see how their rate is built, which improves transparency in the methodology for advances.
• Statement 2 is correct. The aim is that loan rates reflect the bank's actual marginal cost of funds, so banks recover their costs and borrowers are not charged arbitrary or opaque spreads. This balances fairness to both sides.

Core concept: MCLR is an internal benchmark that also helps policy rate changes pass through to lending rates more quickly. For Mains, link it to monetary transmission and the debate over the base rate's opacity. Note that since October 2019, RBI has required external benchmark linkage (EBLR) for new floating-rate retail and MSME loans, so MCLR is no longer the only benchmark.

Trap: candidates often treat MCLR as a policy-rate tool and dismiss statement 2 as vague. Both purposes are stated in RBI's guidelines, so both statements hold.