Repo Rate Drops, Confusion Pops—MCLR vs RLLR Explained

As Reserve Bank of India (RBI) reduced the repo rate by 50 basis points in its June policy review to 5.5%, the lowest since August 2022, borrowers now find themselves at a crossroads: Do you still stick around with MCLR or switch over to RLLR?

 

Understanding the Two Regimes

 

MCLR (Marginal Cost of Funds-Based Lending Rate): This is an internal benchmark set by banks, factoring in their cost of funds, operating expenses, and a tenor premium. MCLR rates are typically reset every 6 to 12 months, meaning rate cuts take time to reflect in your EMIs. For example, SBI’s one-year MCLR has remained at 9% since November 2024, despite a 100 bps drop in the repo rate this year.

 

RLLR (Repo-Linked Lending Rate): It is an external reference rate, directly tied to the RBI repo rate. RLLR-linked loans are reset on a quarterly basis, thus more rate sensitive. With the recent cut, banks like SBI, PNB, and Canara Bank have already reduced their RLLRs by 50 bps, giving relief to borrowers immediately3.

 

Which One Should You Choose?

Real-World Impact:

Assuming you have a ₹40 lakh home loan for 20 years:

 

With RLLR, your EMI may fall by ₹1,250/month following the recent cut.

 

Under MCLR, the advantage can take 6–12 months to materialize, subject to your reset cycle. 

 

Last Word:

During a declining interest rate scenario such as 2025, RLLR loans provide faster savings, but MCLR loans come with a buffer against abrupt increases. Check your personal goals, risk tolerance, and loan features before switching. 

 

References: The Hindu BusinessLine, MSN Money, Economic Times, CMA Knowledge, Mathrubhumi English