State Bank of India (SBI) has raised the marginal cost of funds-based lending rate (MCLR) by 10 basis points across tenors, making most consumer loans costlier for borrowers. According to the SBI’s website, overnight MCLR increased to 7.95 percent from 7.85 percent, and one-month and three-month MCLR rose to 8.10 percent from 8.00 percent.

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While, six-month was revised to 8.40 percent from 8.30 percent, and one year was revised to 8.50 percent from 8.40 percent. Whereas, two-year and three-year MCLR was revised to 8.60 percent and 8.70 percent.

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Who will be impacted?

As mentioned, EMIs will get expensive for those who take loans against the MCLR. There is a reset-period for MCLR based loans, after which the rates get revised for the borrower.

Why are banks raising rates?

Along with SBI, other banks are also raising lending rates. This decision comes in the wake of Reserve Bank of India (RBI) increasing benchmark policy rates.

Since May, the RBI has increased the repo rate by 250 basis points to 6.50 percent. The first hike was to the tune of 40 bps in May and then 50 basis points in June. It again raised the repo rate by 50 bps in August and then again by 50 bps in September. Considering another hike of 35 bps in December and 25 bps in February, the total rise comes to 250 bps.

Why are loans impacted by RBI's decision?

Generally, when RBI hikes the repo rate, it increases the cost of funds for banks. This means that banks will have to pay more for the money they borrow from RBI. Consequently, banks pass on the cost to borrowers by increasing their loan interest rates, making EMIs costlier.

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First Published:Feb 15, 2023 12:02 PM IST