SBI hikes MCLR by 10 bps; loans to be expensive

India's largest lender State Bank of India has increased its MCLR (marginal cost of funds-based lending rate) by 10 basis points across tenors, with effect from April 15. The MCLR hike will lead to a higher rate of interest on different loans EMIs such as homes, autos and others.

The overnight rates have increased to 6.75% from 6.65% earlier, the MCLR rates updated on the SBI website. For one month and three months, the revised MCLR stands at 6.75%, while it's 7.05% for six months. The revised one-year MCLR rate stands at 7.10%, while it's 7.30% and 7.40% for two and three years, respectively.

Two other banks, state-owned Bank of Baroda and private lender Axis Bank, have also increased their MCLR by 5 basis points each, effective from April 12 and April 18, respectively.

At BoB, the overnight MCLR was increased to 6.50%, while the one-month MCLR was 6.95%. The three-month, six months and 1-year MCLR at BoB stands at 7.10%, 7.20% and 7.35%, respectively.

At Axis, the revised MCLR for overnight and one month stand at 7.2%. For three months, it's 7.3%, while it's 7.35% for six months. For one year, MCLR is 7.4%, it's 7.5% and 7.55% for 2 years and 3 years, respectively.

What is MCLR

The RBI launched the MCLR rate by replacing the base rate system on April 1, 2016. MCLR is the minimum interest rate at which banks can lend to customers. The MCLR ensures the benefits from the Reserve Bank's monetary policy reach the borrowers.

Banks are not allowed to lend below the MCLR, except in some exceptional cases with authorisation from the Reserve Bank. The lending interest rate is derived on the basis of the incremental cost of arranging each rupee for the borrower. The MCLR also ensures transparency in the system utilised by banks to fix interest rates on loans. It also helps the RBI to take more effective monetary policy measures.

The Reserve Bank’s six-member monetary policy committee this month had unanimously decided to keep the repo rate unchanged at 4%. The MPC also maintained a status quo on the reverse repo rate. This is the eleventh straight meeting where the key policy rates have been left unchanged. The monetary policy committee also retained its "accommodative" stance while focusing on "withdrawal of accommodation" to ensure that inflation remains within the target going forward.