State Bank has increased its marginal cost of lending rate (MCLR) by 10 basis points. The new rates will be effective from Sunday, May 15. This is the second hike by the public lender bank in the last one month. After these hikes, you will now have to pay more EMIs on loans like car, personal and home loans from SBI.
This sudden increase in MCLR rates by the bank has increased to 6.85 percent in a single month, as against 6.75 percent earlier. MCLR for six months has been increased from 7.05 per cent to 7.15 per cent. Similarly, the one-year MCLR has been increased from 7.10 per cent to 7.2 per cent. Apart from this, the MCLR for two years has increased from 7.3 per cent to 7.4 per cent. The rate has been reduced to 7.5 percent for three years.
What is MCLR?
Introduced by the Reserve Bank of India (RBI) in 2016, MCLR or Marginal Cost of Funds-based lending rate is the rate that determines the interest rate of banks’ loans. This is the minimum interest rate at which a bank can lend to its customers. While deciding the MCLR rates, banks also take into account the cash reserve ratio, marginal cost of funds, term premium and operating cost of the bank. The lending bank generally reviews the MCLR on a monthly basis.
Why are banks increasing MCLR?
The central bank recently increased the repo rate by 40 basis points or 4.40 per cent in an off-cycle meeting to control rising inflation. After increasing the repo rate, many public and private sector banks are increasing their MCLR. At the same time, it is also believed by experts that the MCLR may increase further, because the increase in the repo rate has hit the banks, which may increase the interest rate to compensate.
loan will be expensive
After the increase in SBI’s MCLR, interest rates for personal loans, home loans and auto loans are set to increase. The decision will impact those who have floating rate loans and not fixed interest rate loans. Any change in MCLR will have a direct impact on EMI. Higher the MCLR, higher will be the EMI to be paid by the borrowers. Ra, while announcing the quarterly results last week said that the rising interest rate environment will help the bank to support margins in the near future.