A few days ago, leading private-sector bank HDFC surprised millions of customers by increasing its interest rates. The country's largest state-owned bank, the State Bank of India (SBI), has also announced a hike in its Marginal Cost of Fund-Based Lending Rate (MCLR), making loan EMIs more expensive. The new rates come into effect on November 15, 2024.
SBI has raised the MCLR by basis points (BPS) for three, six months, and one year; the rates for one day, one month, two years, and three years remain unchanged. SBI President CS Shetty stated that 42% of SBI’s loan portfolio is linked to MCLR, while the remaining loans are based on external benchmarks. He also noted that deposit rates in the banking system are currently at their highest levels.
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Earlier in August 2024, SBI had raised its MCLR to 9.10% for three years and 9.05% for two years, despite no recent changes in the Reserve Bank of India's (RBI) policy rates.
What is MCLR?
MCLR (Marginal Cost of Fund-Based Lending Rate) is the minimum interest rate that banks can offer for lending. Introduced by the RBI in 2016, it aims to make lending rates more transparent and responsive to market changes. MCLR is determined by factors such as banks' cost of funds, operating costs, and cash reserves. This system ensures that changes in the repo rate and other monetary policies are reflected in banks' lending rates.
How the Rate Hike Affects Consumers
Any increase in MCLR directly impacts home loans, car loans, education loans, and personal loan EMIs (Equated Monthly Instalments). With SBI’s decision to raise interest rates, borrowers will now have to pay higher EMIs than before. This adds to the financial burden of consumers already affected by rising costs in other sectors.