India’s largest lender SBI has increased marginal cost of funds-based lending rate (MCLR) on loans by up to 20 basis points (bps), effective August 15. This will result in higher EMIs for borrowers who availed loans benchmarked against the MCLR.
State Bank of India (SBI) has also hiked its external benchmark-based lending rate (EBLR) and repo-linked lending rate.
The lender has raised overnight to three-month MCLR rates to 7.35 percent from 7.15 percent. SBI’s six-month MCLR has been hiked to 7.65 percent from 7.45 percent. Additionally, one-year MCLR has been raised to 7.7 percent, two-year to 7.9 percent and three-year to 8 percent.
EMIs will get expensive for those who take loans against the MCLR. The one-year MCLR is imperative as a bank’s long-term loans like home loans are linked to this rate.
There is a reset-period for MCLR-based home loans, after which the rates get revised for borrowers. SBI generally offers a reset period of 1 year for MCLR-based loans. For borrowers, this means that the bank will have to reprice the interest rates on loans after 1 year to pass on any changes in the external benchmark rate.
The RBI’s Monetary Policy Committee (MPC), headed by Governor Shaktikanta Das, in its last policy review hiked the key repo rate at which it lends to commercial banks by 50 bps to 5.4 percent to rein in inflation.
The central bank has raised key policy rate by 1.40 percentage points or 140 bps since its May month’s monetary policy review. Effectively, the repo rate is now above the pre-pandemic level of 5.15 percent.
