State Bank of India or SBI has increased its marginal cost of lending rate (MCLR) by 10 basis points across tenures. The new rates will be effective from Sunday, May 15. This is the second rate hike by the public lender in last one month. Following the revision of rates, you have to shell more for equated monthly instalment (EMI) for home loans and personal loans.
With the latest rise in MCLR rates, the overnight, one-month, three-month MCLR rate of SBI now stand at 6.85 per cent. It was 6.75 per cent earlier. MCLR for six months, has been risen to 7.15 per cent from 7.05 per cent. Similarly, MCLR for one year has been raised to 7.2 per cent from 7.10 per cent. MCLR for two years has been jumped to 7.4 per cent from 7.3 per cent. The lending rate for three-year tenure has been climbed to 7.5 per cent from 7.4 per cent.
What is MCLR?
Introduced by the Reserve Bank of India (RBI) in 2016, MCLR or marginal cost of funds-based lending rate is an internal reference interest rate for banks to offer loans at a competitive and transparent rate. Simply put, MCLR is the minimum rate of interest banks are allowed to give out loans to its customers. It is usually calculated based on the loan tenure or time period in which a borrower has to repay the loan. Banks also take into account the Cash Reserve Ratio, marginal cost of funds, tenor premiums and operational cost of the bank while deciding MCLR rates. The lenders generally review MCLR on a monthly basis.
Why Banks Are Increasing MCLR
The central bank has recently increased repo rate by 40 basis points or 4.40 per cent in an off-cycle meeting to manage the soaring inflation. Following the rise in repo rate, several public and private sector banks are increasing their MCLR. The lenders have started escalating MCLR in anticipation of repo rate hike before the formal announcement of RBI, considering 17-month inflation numbers in March, 2022. The MCLR will continue to surge further as the hike in the repo rate has pushed the cost of the funds for banks.
SBI MCLR Hike: What it Means for SBI Loan Borrowers
After the MCLR hike by SBI, the interest rates of personal loans, home laons and auto loans are set to increase. This decision will affect those who have floating rate loans, not the fixed interest rate loans. “Any alteration in the MCLR would have a direct bearing on the cost of loans such as EMIs. The EMIs are directly proportional to MCLR. Higher the MCLR, higher the EMIs to be paid by the borrowers,” said Pramod Kathuria, founder and CEO, Easiloan.
The rising interest rate environment will help the bank support the margins in near term, SBI chairman Dinesh Kumar Khara said while announcing the quarterly result last week.