SBI lending rates on loans hiked from today, EMI’s likely to go up

State Bank of India has decided to hike the lending rates on loans today which might lead to the EMI’s to go up.

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State Bank Of India has increased the marginal cost of funds-based lending rate, or MCLR, on loans with effect from today. This action would result in higher monthly payments for borrowers whose loans were benchmarked against the MCLR. Given that a bank’s long-term loans, such as house loans, are tied to this rate, the one-year MCLR is significant from the standpoint of retail lending.

The SBI MCLR rate for the overnight to three-month period has increased to 7.35% from 7.15%. The SBI six-month MCLR increases from 7.45% to 7.65%, from 7.7% to 7.7% to 7.9% from 7.7% to 8% from 7.8% at one year, from 7.5% to 7.9%, and from 7.7% to 7.7% at two years. In this regard, SBI had last month increased the marginal cost of fund lending rates by 10 basis points.

The banks were given a methodology to determine their cost of financing when the MCLR was introduced in April 2016, and they subsequently conducted monthly assessments of their offers across different tenors. Each bank determines its MCLR by factoring in things like operating costs and extra costs of generating capital (like via deposits).

For retail loans, the repo rate—the rate at which the RBI lends to banks—must be used as the external benchmark for EBLR loans. Repo rate plus a spread plus a credit risk premium equals a bank’s EBLR. This month, the Reserve Bank abruptly increased the repo rate by 50 basis points, leading many banks to increase the rates that borrowers must pay for various types of loans.