The State Bank of India (SBI), the country’s largest lender, and some of the other major banks have started raising their benchmark lending rate – the marginal cost of funds-based lending rate (MCLR) – a move which will encourage customers to pay more on their home, auto and other personal loans.
SBI increased its MCLR by 10 basis points, effective April 15, across all durations (100 basis points = 1 percentage point).
The one-year MCLR was revised to 7.1%, while the two- and three-year MCLRs were increased to 7.3% and 7.4%, respectively. The MCLR is a reference interest rate, which is the minimum rate at which banks are authorized to lend. Most loans are tied to the one-year MCLR.
Axis Bank, the country’s third-largest private sector lender, increased its MCLR by 5 basis points from Monday. Another private sector lender, Kotak Mahindra Bank, increased its one-year MCLR by 5 basis points to 7.4%, effective April 16.
Last week, public sector lender Bank of Baroda increased its MCLR by 5 basis points, effective April 12.
The MCLR hike by various banks came after the Reserve Bank of India (RBI) appeared hawkish as it focused on tackling inflation, rather than supporting growth, at the meeting. monetary policy review earlier this month. The six-member monetary policy committee said it would focus on withdrawing the accommodation.
Economists expect at least 4 repo rate hikes this fiscal year. The increase in MCLR rates by banks comes after hikes in deposit rates over the past few months.
A senior Bank of Baroda official recently said that there had been an increase in deposit rates on some maturities. The cost of funds for banks has also increased due to funds raised in the markets. Since the MCLR is dependent on the cost of funds, lending rates have now increased.
“As per the RBI report on monetary transmission in India, the share of MCLR-linked loans stood at 62.9% as of March 2021. Thus, an increase in interest would mean a heavier repayment burden for a substantial portion borrowers. said Adhil Shetty, managing director of BankBazaar.com.
“The general practice is to revise the term of loans instead of the EMI. So an increase in interest rates would mean a longer duration at the same EMI,” Shetty said.
Due to the ultra-loose monetary policy stance and excess liquidity in the system over the past two years, interest rates are at historic lows with many lenders offering mortgages as well. lower than 6.5%.
After April’s monetary policy review, 10-year government bond yields jumped and are currently around 7.15%.