SBI, BoB raise MCLR by 5-10 bps

At the end of March 2024, the share of EBLR linked loans in total outstanding floating rate rupee loans of banks was 57.5 per cent while that of MCLR linked loans was 38.3 per cent.

State Bank of India has hiked MCLRs between 5 to 10 bps on various tenors.

Public Sector lenders, including State Bank of India and Bank of Baroda have increased their marginal cost of funds based lending rates (MCLR).

The move is likely to be followed by other lenders also, resulting in an increase in borrowers equated monthly instalments (EMIs).

The country’s largest lender State Bank of India (SBI) has hiked MCLRs between 5 to 10 basis points (bps) on various tenors, effective Monday (July 15). A basis point is one hundredth of one percentage point.

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The bank has revised its one month MCLR by 5 bps to 8.35 per cent from 8.3 per cent. The interest rates on three-month, six-month and one-year MCLRs have been raised by 10 bps each to 8.4 per cent, 8.75 per cent and 8.85 per cent, respectively, as per the SBI’s website.

The bank is now offering MCLR of 8.95 per cent on two-year loan tenor, compared to 8.85 per cent earlier.

This is the second time that SBI has raised MCLR in the last two months. In June, the bank increased its MCLR by 10 bps across all tenors.

Bank of Baroda (BoB) increased MCLRs by 5 bps on select tenors, effective July 12. The lender has increased one-year MCLR to 8.9 per cent from 8.85 per cent. The overnight and six-month MCLRs have been raised to 8.15 per cent and 8.7 per cent, respectively.

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Another state-run lender UCO Bank increased overnight MCLR rate by 5 bps to 8.15 per cent from 8.10 per cent, effective July 11.

The increase in MCLR comes days before the Reserve Bank of India’s (RBI) next monetary policy meeting, which is scheduled from August 6 to 8. The six member Monetary Policy Committee (MPC) is likely to keep the repo rate unchanged at 6.5 per cent in the meeting.

Introduced on April 1, 2016, MCLR is the minimum interest rate below which banks and non-banking finance companies (NBFCs) cannot lend. Banks calculate all operating costs as a percentage of marginal cost of funds for computing MCLR. Under the MCLR regime, banks decide on the interest rate at which they will offer to borrowers on the basis of the marginal cost at which they get funds through funds and by borrowing from RBI.

Banks review their MCLR of different maturities every month on a pre-announced date with approval from their boards. From October 2019, the RBI introduced external benchmark based lending rate (EBLR), which is linked to the repo rate. All retail loans and floating rate loans to MSMEs are now linked to EBLR.

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The RBI has increased the repo rate by 250 bps since May 2022. In response to the cumulative 250 bps hike in the repo rate since May 2022, banks have revised their EBLRs upward by the same magnitude. The one-year median MCLR has been increased by 175 bps during May 2022 to May 2024.

At the end of March 2024, the share of EBLR linked loans in total outstanding floating rate rupee loans of banks was 57.5 per cent while that of MCLR linked loans was 38.3 per cent.