SBI hikes 1-year MCLR to 8.15%, loans to get expensive

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State Bank of India increases marginal cost-based lending rates (MCLR) to 8.15% from 7.95%

Mumbai: State Bank of India (SBI), the country’s largest lender, on Thursday increased interest rate on 1- year marginal cost of funds-based lending rate (MCLR) by 20 basis points (bps) to 8.15% from 7.95%.

One basis point is one-hundredth of a percentage point.

This is the first time a bank has increased the benchmark lending rate after the MCLR regime came into effect in April 2016, signalling a turn in the interest rate cycle.

All new loans taken after 1 April 2016 are linked to MCLR. Most banks lend to retail customers on 1-year MCLR. One-year MCLR is the key lending rate at which SBI pegs its retail loans, including home loans, auto loans, education loans, certain personal loans and loans against properties.

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SBI discloses MCLR for seven tenors—overnight, one month, three months, six months, one year, two years and three years.

Overnight MCLR and six-month MCLR have been increased by 10 bps each to 7.80% and 8%, respectively. SBI has also increased two-year and three-year MCLR by 20 bps each to 8.25% and 8.35%, respectively. SBI pegs most of its personal loans to 2-year MCLR.

On Wednesday, SBI had increased rates on term deposits by 10-75 bps which bankers and analysts attributed to tight banking system liquidity conditions. In the past three months, SBI has raised rates on bulk deposits twice. However, this is the first time after demonetisation that the bank has raised term deposit rates on amounts below Rs1 crore.

Existing borrowers on MCLR-linked loans will not see an impact as per their reset clause. For instance, if you took a home loan linked to 1-year MCLR in November 2017, you will not see any change as your reset clause would kick in only a year later in November 2018. For new borrowers, loans will now get expensive by 20 bps.

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