Public lender State Bank of India (SBI) has raised its 1-year marginal cost of funds-based lending rate (MCLR) by up to 10 basis points (BPS) to 8.4%, the bank announced on Friday.
The MCLR is the minimum interest rate below which a bank cannot lend, except in certain cases.
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With the hike in MCLR, customers can expect their loans and EMIs to get costlier. However, note that the hike in MCLR affects the floating interest rate and not the fixed interest rate. If the Reserve Bank of India hikes the repo rate, banks also raise the lending rate or MCLR to pass on the cost to the customers.
The bank had previously hiked MCLR in December 2022. At that time it raised MCLR for six months and one year from 8.05% to 8.30%. The MCLR for two years had been raised from 8.25% to 8.50%; and the MCLR for three years has been raised from 8.35% to 8.60%.
With the hike in MCLR for 1 year, customers’ EMI outgo will increase. Majority of consumer loans, including auto, home, and personal loans, are tied to the MCLR. Remember, the actual increase in EMI will depend on the amount of the outstanding loan, the loan’s remaining term, and the interest rate levied by the bank.
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The MCLR was put in place to ensure uniform treatment to customers. Before MCLR, banks would lend to their prime customers below the base rate and charge higher interests from others.
The main driver for MCLR rate hike is the inflation and more such actions are expected as the RBI continues to implement its tools to bring inflation below its comfort range of 2-6%.
