State Bank of India (SBI), the country’s largest lender, has hiked its marginal cost of funds-based lending rate (MCLR) by 10 basis points (bps), which will make loans including home loans, auto loans and personal loans costlier. The move comes a week after the RBI raised the key repo rate by 25 basis points (bps) to 6.50 per cent. The MCLR is the minimum lending rate below which a bank cannot lend.
According to the SBI website, the lender has increased the overnight MCLR rate by 10 bps from 7.85 per cent to 7.95 per cent, effective February 15, 2023. The MCLR for the one-month tenure has also been increased by 10 bps, from 8.00 per cent to 8.10 per cent.
The bank has raised its three-month MCLR to 8.10 per cent, compared with 8.00 per cent earlier. The six-month MCLR stands at 8.40 per cent, which was 8.30 per cent earlier.
The benchmark one-year MCLR has been hiked to 8.50 per cent, against 8.40 per cent earlier. For a two-year tenure, the new MCLR is 8.60 per cent, compared with 8.50 per cent earlier. The rate for three-year tenure has been raised to 8.70 per cent from 8.60 per cent.
What is MCLR?
MCLR or marginal cost of funds-based lending rate was introduced by the Reserve Bank of India (RBI) in 2016. It 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 on MCLR rates. The lenders generally review MCLR on a monthly basis.
Why Has SBI Increased MCLR?
The RBI last week raised the repo rate by 25 basis points to 6.50 per cent. It has made credit for banks costlier, as the repo rate is the rate at which the RBI lend money to the banks. After the rise in repo rate, several public and private sector banks are increasing their MCLR.
SBI MCLR Hike: How Will It Impact SBI Loan Borrowers?
After the MCLR hike by SBI, the interest rates of personal loans, home loans and auto loans are set to increase. This decision will affect those who have floating rate loans, not the fixed interest rate loans. Floating interest rate system is the one under which the interest rates keep changing as per the changing market conditions, while the interest rates under the fixed interest rate system continues to be the same through out the loan tenure.
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