In a move that could push up loan repayment costs for borrowers, two of India’s largest lenders have increased their benchmark lending rates. The State Bank of India (SBI), the nation’s largest commercial bank, and Bank of Baroda (BoB) have raised their marginal cost of funds-based lending rates (MCLR) on certain tenors.
Experts anticipate other lenders may follow suit, leading to a rise in equated monthly installments (EMI) for existing and new borrowers. SBI has lifted its one-month and one-year MCLR by 5 and 10 basis points respectively. Similarly, rates have gone up by 10 basis points on the three-month, six-month and two-year tenors. Meanwhile, BoB increased overnight and six-month MCLR by 5 basis points each.
The marginal cost of funds is calculated based on different components like deposit rates, working funds and administrative costs. Banks review MCLR on a monthly basis, which impacts the interest charged on floating rate loans. Introduced in 2016, the MCLR replaced the base rate system and is now the floor rate for loan pricing. Most retail and MSME loans are linked to external benchmark rates like repo instead of MCLR.
With inflationary pressures continuing, many analysts expect further rate hikes by the Reserve Bank of India in the coming months. This could compel banks to consistently raise their lending rates, making borrowing costlier for consumers and businesses. The latest MCLR revision comes ahead of the next RBI monetary policy meeting scheduled in the first week of August.
