SBI Lending Rate Hike: Here’s How MCLR Hike Will Impact Home, Auto Loan EMIs

Th hike in MCLR will impact only those borrowers who have availed loans on MCLR while those whose loans are linked to other benchmarks will not get affected

New Delhi: After the country's largest lender State Bank of India (SBI) last month raised its marginal cost of funds based lending rate (MCLR), the bank has once again raised MCLR by 10 basis points (0.1 per cent) across all tenures on Sunday.

This is the second hike in a month raising the cost by 0.2 per cent with the two consecutive increases.

What’s MCLR rate?

MCLR is the benchmark rate below which the lenders are not allowed to lend. Most banks do not offer rates on term loans lower than the MCLR. However, several banks have linked term loans such as home loans and personal loans to external benchmark lending rates.

According to the Reserve Bank of India (RBI) data, as of December 2021, 45.1 per cent of personal loans are linked with MCLR while 46.2 per cent of them are linked with the external benchmark. About 33.1 per cent of the housing loans are linked with MCLR, while 58.2 per cent are linked with the external benchmark.

What’s the hike?

The revision comes amid off-cycle rate increase by the RBI earlier in May. The central bank raised the repo rate at which it lends short term money to banks by 0.40 per cent to 4.40 per cent. According to market observers, the lending rate revision by SBI is likely to be followed by other banks in the coming days.

Most of the loans are linked to the one-year MCLR rate, the PTI reported.

Starting May 15, the bank's one-year MCLR has been raised to 7.20 per cent from the previous 7.10 per cent. MCLR for two years has been raised to 7.40 per cent compared to their previous 7.30 per cent, while for three years the benchmark is increased to 7.50 per cent versus earlier 7.40 per cent.

How it will impact EMIs of borrowers?

Th hike in MCLR will lead to an increase in EMIs for SBI borrowers.  Only those borrowers who have availed loans on MCLR will get affected.

The EMIs will go up for such borrowers while those whose loans are linked to other benchmarks will not get affected. This move will affect those who have floating rate loans, not the fixed interest rate loans. SBI's External Benchmark based Lending Rate (EBLR) is 6.65 per cent, while the Repo-Linked Lending Rate (RLLR) is 6.25 per cent effective April 1.

Banks add Credit Risk Premium (CRP) over the EBLR and RLLR while giving any kind of loan, including housing and auto loans.

The rising interest rate environment will help the bank support the margins in near term, said SBI Chairman Dinesh Kumar Khara at the time of announcing the quarterly result last week.