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Apply NowBanks offer you a variety of loans for floating interest rates, which have a direct influence on the MCLR, or Marginal Cost of Funds based Lending Rate. It has gained much significance since its inception on April 1, 2016. Banks determine this “tenor-linked internal benchmark” internally based on the tenor remaining for the repayment of a loan.
MCLR is the minimum lending rate below which banks are not allowed to lend. Replacing the base rate, which was the standard lending rate earlier, MCLR is closely connected to the existent deposit rates. It is derived based on the components such as the marginal cost of funds, operating costs, Cash Reserve Ratio (CRR) and Tenure Premium.
Banks, under MCLR, can offer different types of loans and tenors on lending rates calculated by adding the components used for MCLR calculation. This also includes the incremental or extra cost of having an additional rupee for a prospective loan applicant. Henceforth, banks cannot give loans of a particular maturity at an interest rate lower than this rate. They have to publish this rate on different maturities every month. Here are some objectives of this rate:
The banking system has a major influence on the economy of a country. With the current MCLR rate, banks keep the faith of the borrowers and the business in the banking sector. The transparency maintained in the lending rates through calculations based on the minimum loan rate encourage more and more individuals and businesses to depend on banks for their credit needs.
Through MCLR, there is quicker and more effective transmission of RBI’s policy rates into the banking system, resulting in better monetary policy measures. The interest cut rates from RBI will thus, reduce the EMIs on loan.
A bank is required to publish its MCLR rate for various maturities every month according to the regulation from RBI. These maturities may be overnight, fortnight, one month, six months, 12 months, or anything other than these, which a bank would publish. You can find this minimum loan rate on the official website of the bank.
If you have a home loan, you do not have to link it; however, for some loans like a travel or vehicle loan, you need to. The MCLR for business loans, home loans, etc., has been replaced by the newly introduced external benchmarking system in October 2019 by RBI. This new lending rate system is applicable for only floating-interest-rate loans, and not for those with fixed interest rates. Furthermore, only banks will apply this new benchmarking system and not the nonbanking financial companies.
As a result, the loans offered by banks under the new system are connected to the repurchasing option (repo) rate or treasury bills offered by the Government of India, which is to promote transparency and efficiency in the banking system. While boosting retail consumption, the current MCLR rate and system helps banks to pass any reduction in interest rates to customers.
You can apply for a home loan at the best interest rates on the IDFC FIRST Bank website here. Using the IDFC FIRST Bank’s home loan EMI calculator, you can calculate your EMI payments for a maximum tenure of 30 years.
Disclaimer
The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.
The features, benefits and offers mentioned in the article are applicable as on the day of publication of this blog and is subject to change without notice. The contents herein are also subject to other product specific terms and conditions and any third party terms and conditions, as applicable. Please refer our website www.idfcfirstbank.com for latest updates.