India’s largest bank, the State Bank of India (SBI) on July 15, 2024 increased its benchmark marginal cost of fund-based lending rate (MCLR) by 5-10 basis points (bps) across most tenures. This hike by SBI in MCLR is the second consecutive rate hike after a 10 bps hike announced last month. New MCLR rates are effective from July 15, and the loan rates will also see the same hike on the same date, leading to an increase in equated monthly instalments (EMIs) across linked loans.
SBI’s MCLR Revision And Loan Rates
MCLR is the internal benchmark rate that decides the minimum rate at which banks can lend. It is decided based on the cost of arranging funds for lending. The interest rate on a loan is set at a fixed percentage above the MCLR, called the “spread”.
According to the SBI website, MCLR for loans with tenures of one month to three years have been hiked by 5-10 bps. A 5 bps hike will increase the benchmark rate on one month to 8.35 per cent, while the three-month MCLR has been hiked by 10 bps to 8.40 per cent. The six-month, one-year and two-year tenure rates saw 10 bps hike to 8.75 per cent, 8.85 per cent and 8.95 per cent, respectively.
The three-year MCLR saw a 5 bps hike to 9 per cent. Only EMIs for personal and auto loans linked to MCLR will rise, while home loans will remain unchanged as they are tied to the external benchmarks.
According to RBI regulations, loans availed on or after April 1, 2016, are automatically linked to MCLR. While the base rate of loans remains unaffected by changes in the repo rate, MCLR changes with repo rate fluctuations. The repo rate has been unchanged for the last eight MPC meetings.
Meanwhile in India, food inflation remained high driven by vegetable prices, taking the headline retail inflation to a four-month high of 5.08 per cent in June 2024. At the upcoming RBI monetary policy committee (MPC) meeting, the headline retail inflation is expected to prolong the central bank’s bearish stance as it aims to keep the inflation at the 4 per cent target.
Corporate loans are usually related to internal benchmark rates such MCLR, and so the MCLR hike affects corporate loans, too. SBI had informed last week that it has started offering online loan against mutual funds through SBI Online Banking and YONO App.
