Your home loan rate is linked to one of these two systems. One passes RBI rate cuts to you quickly. The other doesn't. Here's everything you need to know.
If you have a home loan in India, you've almost certainly seen the terms MCLR and RLLR thrown around. Your bank uses one of these to set your interest rate, and which one you're on makes a significant difference to how quickly your EMI changes when the RBI moves rates.
Most borrowers have no idea which system their loan is on. Even fewer know that they may have the right to switch. This page explains both systems in plain language, which one is better, and what you should do depending on where your loan sits.
When the RBI cuts its repo rate, it expects that benefit to pass through to borrowers, your EMI should go down. But historically, banks were very slow to reduce rates for existing customers, even when the RBI cut rates aggressively.
Real example: Between 2019 and 2020, RBI cut the repo rate by 2.5%. Many borrowers on MCLR-linked home loans saw their rate drop by only 0.5–1% over the same period. Banks kept the savings for themselves.
RBI introduced the external benchmark system (RLLR/EBLR) in October 2019 specifically to fix this. It forces banks to pass rate changes through directly and quickly.
MCLR stands for Marginal Cost of Funds Based Lending Rate. Introduced in 2016 to replace the even older Base Rate system, MCLR is a rate that each bank calculates internally based on its own cost of funds, deposits, borrowings, operating costs, and a profit margin.
The core problem with MCLR is that it's internal to the bank. When RBI cuts the repo rate, the bank recalculates its MCLR based on its own funding costs, which may or may not have come down. The transmission is slow and often incomplete.
On top of that, MCLR loans have a reset period, typically 6 months or a year. Even if the bank lowers its MCLR today, your loan rate only resets at the end of your reset period. So you could wait up to a year to see any benefit from an RBI rate cut.
RLLR stands for Repo Linked Lending Rate. EBLR stands for External Benchmark Lending Rate. They're essentially the same thing, your loan rate is directly tied to the RBI repo rate.
Formula: Repo Rate + Bank Spread = Your Interest Rate
For example: Repo Rate (6.25%) + SBI Spread (2.65%) = 8.90% home loan rate.
When RBI changes the repo rate, your loan rate changes within 3 months, automatically, no reset period games. The bank cannot manipulate the transmission because the benchmark is external and public.
| Factor | MCLR | RLLR / EBLR |
|---|---|---|
| Benchmark | Internal bank calculation | RBI repo rate (public) |
| Transparency | Low, bank controls it | High, repo rate is public |
| Rate cut transmission | Slow, 6 to 12 months | Fast, within 3 months |
| Rate hike transmission | Slower | Faster, within 3 months |
| Reset period | 6 months or 1 year | Quarterly |
| New loans (post Oct 2019) | Not available | Mandatory |
Important: RLLR is better when RBI is cutting rates (like now). But it also means your rate rises faster when RBI hikes. The transparency is the real win, you always know exactly why your rate changed.
If you took your home loan after October 2019, you are almost certainly on RLLR/EBLR, RBI made it mandatory for all new floating rate loans from that date.
If you took your loan before October 2019, you are likely still on MCLR, unless you've already switched.
The fastest way to check: look at your loan sanction letter or latest interest rate reset notice from your bank. It will say "MCLR" or "RLLR" or "EBLR" explicitly. You can also call your bank's customer care and ask directly.
In most cases, yes, especially right now when RBI is in a rate-cutting cycle. Being on RLLR means every RBI cut flows through to your EMI within a quarter. Being on MCLR means you might wait a year and get only partial benefit.
Find your most recent loan statement. Note your current interest rate and when your next reset date is.
Call customer care or visit the branch. Ask to switch from MCLR to RLLR/EBLR. Most banks allow this, they may charge a small conversion fee (typically ₹2,000–₹5,000 or 0.25% of outstanding).
Compare your current MCLR-linked rate vs the bank's current RLLR rate. If RLLR is lower, switch immediately. If they're similar, switch anyway for the transparency and faster future cuts.
Before signing anything, get the new rate, the spread, and the reset frequency confirmed in writing. The spread the bank sets is fixed for the loan tenure, make sure it's fair.
MCLR is the old system. RLLR is the new system. If you're still on MCLR, you're leaving money on the table every time RBI cuts rates. The switch is usually low cost and almost always worth it.
Check your loan documents today. If it says MCLR, call your bank this week.
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