Major news to ears is that the State Bank of India (SBI) has increased the marginal cost of lending rate (MCLR) by 0.1 per cent or 10 bps, which will be effective from May 15, Sunday. This is the second hike of this month in lending rates by SBI, as the bank has already increased it once a few days ago. With this revision, the Equated Monthly Instalments (EMIs) will get directly affected and home loan or personal loan borrowers will have to shed more money.
SBI MCLR Hike Month Wise
With the latest push, the overnight, one month, and three months MCLR of SBI has now reached 6.85 per cent from the previous of 6.75. For six months the MCLR is now 7.15 per cent from 7.05 per cent earlier. For two years the MCLR stands at 7.4 per cent from 7.3 per cent. And finally, for the three years tenure the MCLR rate has hiked to 7.5 per cent from 7.4 per cent.
What Is Marginal Cost Of Lending Rate (MCLR)?
Well, the concept was introduced by the Reserve Bank of India (RBI) in 2016, MCLR or “marginal cost of funds-based lending rate” is an internal benchmark set for the bank to lend loans. To make it simple we can say MCLR is the minimum interest rate set for the bank below it is not allowed to lend money to the customers. The rate is calculated based on various factors which include the loan amount, tenure, etc. Some more complex factors that banks take into account are “Cash Reserve Ratio, the marginal cost of funds, tenor premiums and operational cost” to decide on MCLR.
Why Are Banks Forced To Increase MCLR?
The hiked MCLR by the SBI is the result of the increased repo rates by the Reserve Bank of India by 40 bps. The RBI decision is also a response to raging inflation, thus after this decision many private and public sector banks have increased their MCLR. Even some banks began estimating the MCLR revision rates before the formal announcement by the RBI.
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Impact On SBI Borrowers
After this hike, the interest rates on personal loans, home loans and auto loans are going to be increased. Easiloan, Founder, Pramod Kathuria said, “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.”
