Brace for Higher Loan Costs! SBI Raises MCLR, Increasing EMI Burden

Brace for Higher Loan Costs! SBI Raises MCLR, Increasing EMI Burden

State Bank of India (SBI) has announced an increase in its Marginal Cost of Funds-Based Lending Rate (MCLR) by up to 10 basis points across selected tenures. The adjustment, effective from December 15, 2023, is anticipated to result in higher Equated Monthly Installments (EMIs) for loans linked to MCLR.

Introduced in 2016, MCLR serves as a benchmark interest rate for banks to determine minimum lending rates for various loan products like home loans, car loans, and personal loans. It replaced the previous base rate system, offering a more flexible mechanism tied to changes in banks’ cost of funds.

As per information available on the SBI website, the overnight rate remains unchanged. However, the MCLR for the one-year tenure has been raised to 8.65%, up from 8.55%. Similarly, the two-year and three-year MCLR have also seen an increase of 10 basis points to 8.75% and 8.85%, respectively.

Lending rates for one month, three months, and six months have been raised by five basis points each. The revised rates are as follows:

TenorExisting MCLRRevised MCLR
One Month8.15%8.20%
Three Months8.15%8.20%
Six Months8.45%8.55%
One Year8.55%8.65%
Two Years8.65%8.75%
Three Years8.75%8.85%

In recent months, several lenders, including HDFC Bank, ICICI Bank, and Bank of India, have raised their MCLR. Since October 2019, the Reserve Bank of India (RBI) has mandated banks to link their retail floating rates to external benchmarks like the repo rate, aiming to enhance the transparency and efficiency of interest rate adjustments. Borrowers now have the option to refinance MCLR-linked loans to repo-linked loans.

On December 8, 2023, the Monetary Policy Committee (MPC) led by RBI Governor Shaktikanta Das maintained the repo rate at 6.5% for the fifth consecutive time. SBI’s Effective Benchmark Lending Rate (EBLR) currently stands at 9.15%, comprising the Base Rate (BR), Credit Risk Premium (CRP), and BSP (Business Strategy Premium). The Repo Linked Lending Rate (RLLR) is 8.75%, directly tied to the RBI’s repo rate, serving as a reference for setting lending rates.