SBI hikes lending rate by 0.1%; home, car EMIs to go up

The State Bank of India (SBI) has raised its marginal cost of funds-based lending rate (MCLR) by 10 basis points (bps) or 0.1 per cent across all tenures. This move by the country’s largest lender will result in an increase in EMIs for borrowers. The lending rate revision by SBI is likely to be followed by other banks in the days to come.

With the increase, EMIs will go up for those borrowers who have availed loans on MCLR, but not for those whose loans are linked to other benchmarks. The revised MCLR rate will be effective from April 15, the SBI website informed.

Applicable across all tenors

According to SBI, this hike will be implemented across all tenors and may result in an increase in the EMIs of home, car, and other loans for existing and future borrowers.

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With this, one-year MCLR rate – with which most loans are linked — has increased to 7.10 per cent, from the earlier 7 per cent.

An overnight, one-month and three-month MCLR rose to 6.75 per cent, whereas a six-month MCLR increased to 7.05 per cent. Further, two-year MCLR increased to 7.30 per cent, while three-year MCLR rose to 7.40 per cent.

Apart from SBI, Bank of Baroda (BoB) also announced a hike in MCLR rates by 5 bps across tenors. The benchmark one-year tenor MLCR is now 7.35 per cent with effect from April 12, 2022.

Minimum rate of interest

MCLR is the minimum rate of interest that banks can allow to give out loans to their customers. This was introduced by the Reserve Bank of India (RBI) in 2016. The new RBI guideline replaced base rate for commercial banks to set lending rates.

From October 1, 2019, all banks, including SBI, have to lend only at an interest rate linked to RBI’s repo rate or Treasury Bill yield. As a result, monetary policy transmission by banks has gained traction, reports Moneycontrol.

“Looking ahead, the proportion of loans linked to external benchmarks is expected to increase further along with a commensurate fall in the internal benchmark linked loans. Coupled with shorter reset periods, monetary transmission to banks’ interest rates can, thus, be expected to strengthen further, moneycontrol quoted in a recent RBI article.

(With Agency inputs)

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