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Mains Prelims

Q43 · UPSC Prelims 2016 · Set A · Economy

← Q42 Q44 →

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 code given below

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A 1 only
B 2 only
C Both 1 and 2
D Neither 1 nor 2

Correct answer: (c) Both 1 and 2

Explanation

  1. A

    1 only

    Statement 1 only. MCLR does make the lending-rate method more transparent, but RBI also framed it as fair to both borrowers and banks. 1 alone is incomplete.

  2. B

    2 only

    Statement 2 only. Fairness of rates is an stated purpose, yet transparency of methodology is equally central. 2 alone is not the key.

  3. C

    Both 1 and 2

    Both 1 and 2. Marginal Cost of Funds based Lending Rate (2016) replaced the base-rate regime so that banks publish a clearly computed internal benchmark and transmit policy-rate changes more fairly to borrowers while covering their marginal cost of funds. That stored letter is the official key.

  4. D

    Neither 1 nor 2

    Neither. Both purposes are in RBI’s MCLR rationale, so ‘neither’ is not the key.

Summary. Official key is (c) both 1 and 2. MCLR was RBI’s 2016 benchmark to make loan pricing transparent and balanced for banks and borrowers. Honour the stored letter (c).

Same topic · past papers

UPSC has asked this before

These previous-year questions sit on the same topic. Open one to practise the earlier ask.

  1. 2026 · Q53 · General Studies · 2 marks

    Ms. X is a mid-level civil service official working in the urban development department of a major city. Recently, she was involved in approving a contract for a public infrastructure project - a new community park. During the approval process, she received a piece of confidential information indicating that one of the shortlisted contractors had a history of poor workmanship and allegations of corruption in other cities, though nothing had been legally proven. The Head of the Department, Mr. Y, advised her not to disclose this information to the project committee or the public because it could delay the project and damage the city's reputation. However, Ms. X believed that withholding such information compromised transparency and public trust. What amongst the following should Ms. X do now? 1. Immediately disclose the information to the project committee and the public 2. Recommend removing the contractor from the shortlist to protect the project's integrity 3. Propose a 'limited disclosure' to an oversight committee, while keeping the information confidential from the public for the time being Select the answer using the code given below:

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← 2016 Set A paper

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