The country’s largest lender State Bank of India (SBI) has increased its marginal cost of fund based lending rate (MCLR) by 5-10 basis points (bps) across various tenors, effective today.
The hikes in MCLR by the lender come even as the Reserve Bank of India (RBI) kept the repo rate unchanged at 6.5 per cent in its monetary policy announced on December 8. This move is likely to be followed by other lenders, resulting in costlier loans for borrowers.
The interest rates on one – and – three-month MCLRs have been revised up by 5 bps to 8.2 per cent from 8.15 per cent earlier, as per the information on the bank’s website. One basis point (bps) is one-hundredth of a percentage point.
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For six-to-three-year MCLRs, the rates have been revised up by 10 bps. The lender is offering interest rates of 8.55 per cent and 8.65 per cent on six-month and one-year MCLRs, respectively. The new rate on two-year MCLR is 8.75 per cent and on the three-year tenor is 8.85 per cent.
This is for the first time since July 2023 that SBI has hiked its MCLR. In July, it increased MCLR by 5 bps across all tenors.
Introduced on April 1, 2016, MCLR is the minimum interest rates below which banks cannot lend. It reflects the trends in banks’ cost of borrowing.
In 2019, the RBI introduced the external benchmark linked rate (EBLR) – which is linked to the repo rate – to further increase the pace of monetary policy transmission. Currently, all the retail loans are linked to EBLR.
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While any hike or cut in the repo rate gets immediately reflected in loans linked to EBLR, banks review interest rates under MCLR regime every month at a pre-announced date.
In response to the 250 bps hikes in the repo rate by the RBI since May 2022, lenders have revised their repo-linked EBLRs by the same quantum.
The revision in MCLR happens with a lag. The 1-year median MCLR increased by 152 bps during May 2022 to October 2023, the ‘State of the Economy’ article published in the RBI’s monthly bulletin for November showed.