State Bank of India (SBI) has raised its marginal cost of funds-based lending rates (MCLR) for select short-term tenures, effective November 15, 2024. This hike will affect the interest rates on loans linked to these tenures, leading to an increase in equated monthly instalments (EMIs) for many borrowers.
Changes In MCLR Rates
SBI has adjusted its MCLR rates for three short-term tenures. The new rates are 8.55 per cent for the 3-month tenure (up from 8.5 per cent), 8.9 per cent for the 6-month tenure (up from 8.85 per cent), and 9 per cent for the 1-year tenure (up from 8.95 per cent), according to SBI. The MCLR rates for other tenures are unchanged; these modifications only apply to these short-term tenures. As a result, borrowers with loans linked to these tenures will experience higher monthly repayments due to the increased rate of interest.
What Is MCLR?
MCLR is the minimum rate of interest below which banks are not supposed to offer loans. It replaced the earlier base rate system in 2016, introduced by the Reserve Bank of India (RBI). While MCLR applies to loans taken after 2016, borrowers who took loans before that year are still governed by the earlier base rate or Benchmark Prime Lending Rate (BPLR).
The BPLR system was introduced in 2003, then replaced in 2010 by the base rate system, which has now been replaced by MCLR.
The higher rates will result in higher monthly payments for consumers who have car, housing, and personal loans associated with these short-term MCLR tenures. Even though the three tenures’ MCLR increases are only 5 basis points (bps) for each, it could still have a noticeable impact, especially for borrowers with bigger loans or longer repayment periods. In response to these changes, borrowers may want to explore refinancing options to mitigate the effect of rising EMIs.
Earlier this month, HDFC Bank raised its MCLR, and SBI has since done the same. This is consistent with a broader trend in the banking sector where rising inflation and the cost of money are driving higher loan rates.
