SBI announces 10 basis points hike in MCLR: Here's how it will impact your home, car loan EMIs

India’s largest public-sector lender, State Bank of India has announced a 10 basis points hike in its marginal cost of lending rate (MCLR), effective from 15 May. The latest revision comes a month after the bank hiked its MCLR or the minimum rate of lending by 10 basis points on 15 April.

The hike takes the bank’s overnight, one-month, three-month MCLR rate to 6.85 per cent from 6.75 percent after the previous hike. Similarly, MCLR for six months has climbed up to 7.15 from 7.05 percent while yearly rates have moved from 7.2 to 7.10 percent.

SBI’s MCLR rate for loans with two and three-year tenure now stands at 7.4 and 7.5 after the jump of 10 basis points. The hike in MCLR rates will directly translate into increased EMIs for SBI customers on their new or existing car, home, personal or other loans.

If we assume the MCLR rate to be your interest rate for any existing loan, then the revised rates will now be your yearly interest rates. However, the actual interest rate charged by the bank also includes a margin over the MCLR rate. The margin charged from any customer depends on various factors including their CIBIL score, nature of jobs and various other factors.

Introduced by the Reserve Bank of India in 2016, MCLR is the minimum interest at which banks can lend to their customers. It is usually calculated based on the loan tenure while considering factors like Cash Reserve Ratio, marginal cost of funds, tenor premiums and operational cost of the bank while deciding MCLR rates. MCLR is generally revised on a monthly basis.

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The revision in SBI’s MCLR comes in the backdrop of the Reserve Bank of India’s decision to increase the repo rate. The central bank hikes the repo rate or rate at which it lends to the commercial bank by 40 basis points in an off-cycle meeting to manage inflation in the country. The lenders have started escalating MCLR in anticipation of a repo rate hike before the formal announcement by RBI.

MCLR is expected to surge further as the repo rate hike has increased the cost of funds for the bank.

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