India’s largest lender State Bank of India (SBI) announced a 10 basis points hike in its marginal cost of funds based lending rate (MCLR) effective June 1, 2018 across all tenors. This is the second hike in about 3 months considering the 25 basis points hike announced on March 1, 2018.
This announcement comes amidst a time when SBI hiked the interest rate for its fixed deposit by 25 basis points across select tenors. Moreover, the Reserve Bank of India (RBI) is all set to announce its bi-monthly monetary on June 6, 2018.
An increase in MCLR typically means that loans are about to get costlier unless the bank decides to lower its margin to absorb the interest rate increase. It is expected that various loans including home loans and personal loans are likely to get costlier following this rate hike by SBI.
MCLR for overnight and one month tenors have been raised to 7.9% from 7.8% charged before. For the three-month tenor, the rate has been raised to 7.95% from 7.85% charged earlier. After the rate hike, the six-month the lending rate stands at 8.10% compared to the earlier rate of 8.00%. For one-year, two-year, and three-year tenors, MCLR currently stands at 8.25%, 8.35%, and 8.45% respectively after the 0.10% hike.
The equated monthly installment (EMI) payment for various loans includes the loan repayment amount and the interest payable on loans. Any hike in the interest rate will be automatically reflected in the EMI amount payable unless the bank reduces its margins on those payments.
People who have borrowed home loans or personal loans before April 1, 2016 need not have to pay the MCLR. However, the RBI has mandated its inclusion in all loans taken after that. Banks are free to charge a markup interest rate over the MCLR. However, they cannot charge anything lower than that.
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