How do lending rates work? MCLR, RLLR, EBLR, and BPLR explained

In 2025, the RBI cut the repo rate four times: a 25 basis points (bps) cut in February and April, a 50 bps cut in June and another 25 bps cut in December. Four cuts in a single calendar year aren’t a common occurrence in India.

The repo rate is the interest rate at which the RBI lends money to banks. When the RBI cuts the repo rate, borrowing becomes cheaper for banks. In most cases, banks pass these benefits to customers.

When the RBI cuts the repo rate, it aims to inject more money into the economy and increase the purchasing power of consumers.

With a series of repo rate cuts this year, terms like MCLR and RLLR have been making rounds on the internet regularly. Even after the 25 bps cut in December, many banks, including SBI and HDFC Bank, cut their MCLR and other lending rates. Let’s understand how lending rates work.

Lending rates explained

Most of the retail floating-rate loans issued after October 2019 are linked to external benchmarks, usually the repo rate. Due to this, EMIs become cheaper when the RBI cuts the repo rate. Banks pass the benefit of the rate cut to borrowers either fully or partially, depending on their interest reset cycle.

Benchmark Prime Lending Rate (BPLR): BPLR is an older benchmark, which is generally associated with lower transparency. BPLR is basically an internal benchmark used by banks to set lending rates. Borrowers rarely see the benefit of a repo rate cut if their loans are linked to the BPLR.

Marginal Cost of Funds-based Lending Rate (MCLR): MCLR is a bank’s cost of funds and its operating costs. MCLR does not change automatically with a repo rate cut. Banks revise their MCLR periodically. This is why MCLR changes by smaller margins while EBLR and RLLR are revised in the same manner as the repo rate cut.

External Benchmark-linked Lending Rate (EBLR): EBLR is directly linked to an external benchmark, usually the repo rate. EBLR-linked loans typically get the direct and automatic benefit of a repo rate cut.

Repo Linked Lending Rate (RLLR): RLLR is a type of EBLR, which means it also usually gets the full benefit of a repo rate cut. The repo rate is used as the base for loans linked to RLLR.

All banks respond to repo rate cuts differently: While some change all lending rates, some only pass the benefit through EBLR and RLLR, and keep other rates unchanged. Similarly, some banks only revise their MCLR.

However, generally, a repo rate cut is good news for borrowers, as loans become cheaper and EMIs get more affordable.

For example, if a borrower has a ₹50 lakh home loan at 9% interest for 20 years, a 50 bps rate cut can reduce his/her EMI by ₹1,500-₹2,000 per month.

Importantly, a repo rate cut won’t always immediately result in a reduction in EMIs, especially in MCLR-based loans. Loans linked to external benchmarks like EBLR and RLLR pass on RBI rate cuts faster and more transparently than MCLR or BPLR-based loans.