MUMBAI: Old home loans and some business loans have got costlier with SBI increasing its marginal cost of lending rate (MCLR) by 10 basis points (100bps = 1 percentage point) for the second successive month. The MCLR is the benchmark for some categories of business loans and home loans taken before October 2019.
For home borrowers who took home loans after 2019, the lending rate has gone up by 40 basis points, as these are linked to the RBI’s repo rate. On May 4, the RBI hiked its repo rate by 40 basis points.
According to bankers, the MCLR will continue to rise as the hike in the repo rate has pushed up the cost of funds for banks. These higher costs are passed on to borrowers by reviewing the marginal cost of lending every month.
Announcing the results on Friday, SBI chairman Dinesh Khara had indicated that the rate increase would be positive for the bank’s margins as most of the loans are subject to floating rates which means that they get revised almost immediately when interest rates rise. Term deposit returns are fixed for the tenure of the deposits, and the deposits get repriced when they mature. This is why banks see an improvement in margins when rate rise and vice versa.
Following the announcement on Sunday, May 5 SBI’s one-year MCLR has been hiked to 7.2% from 7.10%. MCLR for two years has been raised to 7.4% from 7.3%, while for three years the benchmark has been increased to 7.5% from 7.4%. MCLR for six months is increased to 7.15% from 7.05%. MCLR is raised to 6.85% each on three months, one month, and overnight tenure compared to the previous 6.75%.

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