State Bank of India (SBI), the country’s largest lender, has increased its marginal cost of funds based lending rate (MCLR) by 10 basis points (bps) or 0.1 per cent across all tenures, raising EMIs for borrowers.
Other banks are anticipated to follow SBI’s lead in lowering lending rates in the coming days
Meanwhile, other banks are anticipated to follow SBI’s lead in lowering lending rates in the coming days.
The hike will raise EMIs for borrowers who have taken out loans based on the MCLR, but not for those whose loans are based on other benchmarks.
SBI’s external benchmark based lending rate (EBLR) is 6.65%, while the repo-linked lending rate (RLLR) is 6.25 per cent, both effective April 1.
Moreover, when granting any type of loan, including house and vehicle loans, banks add a Credit Risk Premium (CRP) over the EBLR and RLLR.
According to information on the SBI website, the increased MCLR rate goes into effect on April 15.
However, with the revision, the one-year MCLR has risen to 7.10 per cent, up from 7.0% previously.
Further, the overnight, one-month, and three-month MCLRs all climbed by 10 basis points to 6.75 per cent, while the six-month MCLR rose to 7.05 per cent. The majority of loans are based on the one-year MCLR rate.
Simultaneously, the two-year MCLR jumped by 0.1 per cent to 7.30 per cent, while the three-year MCLR increased to 7.40 per cent.
From October 1, 2019, all banks, including SBI, must lend exclusively at an interest rate tied to an external benchmark, such as the RBI’s repo rate or Treasury Bill yield. As a result, banks have become more involved in monetary policy transmission.
Meanwhile, the influence of the implementation of external benchmark-based loan pricing on monetary transmission has been felt across a wide range of industries, including those not immediately related to external benchmark-based loan pricing.
“Looking ahead, the proportion of loans linked to external benchmarks is expected to increase further along with a commensurate fall in the internal benchmark linked loans. Coupled with shorter reset periods, monetary transmission to banks’ interest rates can, thus, be expected to strengthen further,” the RBI wrote in a recent article.
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