SBI and other banks raise lending rates; what it means for youIndia’s largest banks have raised their marginal cost of lending rate (MCLR) by 0.10%. The increase may seem small but it comes within a few months of the last round of rate hikes. The hike is likely to push up the EMIs on your home, car, personal and other loans.  

What is MCLR

The MCLR takes into account the marginal cost of funds which is linked to deposits and other sources of funds for banks. It is hence more sensitive to overall rates in the economy including the RBI’s Repo and Reverse Repo rates. The rate on your loan is usually expressed as ‘MCLR + x percent.’ The additional ‘x per cent’ is related to how risky you are as a borrower and can change from borrower to borrower.

The MCLR rates have to be reviewed and declared once a month. These are overnight, one-month, three-month, six-month, one year, two-year, three-year and five-year rates. The RBI further requires that a reset of the interest rates of loans based on the MCLR shall be at least once a year.

As we write here, the RBI made it mandatory for banks to link their lending rates with the MCLR from 1st April 2018, for new borrowers. Older borrowers may have their loans tied to a ‘base rate’. However, the RBI made it mandatory for this ‘base rate’ to be linked to the MCLR as well.

How much is being increased

SBI’s one-year MCLR has been increased from 8.15% to 8.25%. It has also increased the MCLR for other tenures. The hikes have been made effective from 1st June 2018.

Tenure Existing MCLR Revised MCLR
Overnight 7.80 7.90
One Month 7.80 7.90
Three Month 7.85 7.95
Six Month 8.00 8.10
One Year 8.15 8.25
Two Years 8.25 8.35
Three Years 8.35 8.45

PNB has increased its one-year MCLR from 8.30% to 8.40%. It has made similar changes in its one month, six-month, 3-year and 5-year MCLR. They are as follows:

Tenure Existing MCLR Revised MCLR
Six Month 8.25 8.30
One Year 8.30 8.40
Three Years 8.45 8.55
Five Years 8.60 8.70

It has been reported that other banks like ICICI have also followed suit. Its one-year MCLR is presently 8.30%. HDFC Bank’s one-year MCLR is also 8.30%.

You can compute the exact effect of a higher lending rate on your EMI by using our calculator.

Author
Neil Borate

Neil Borate is Deputy Editor, RupeeIQ. He can be contacted at neil@rupeeiq.com.