The State Bank of India (SBI) has hiked its marginal cost of lending rates (MCLR) by 10 basis points. The revised rates will make loans like home loans, auto loans, and personal loans costly for borrowers. According to SBI’s website, the revised rates are effective from August 15, 2024. Its one-year MCLR rate has increased from 8.85 per cent to 8.95 per cent. Earlier, the bank raised its MCLR in June this year by 30 basis points.

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What Is the MCLR Rate?

The MCLR is the minimum lending rate of a bank.  Earlier, the bank would offer loans linked to base rates. In 2016, the Reserve Bank of India (RBI) replaced the banks’ base rate system with MCLR to better transmit the RBI’s repo rate to the borrowers. Banks set the rate internally but indirectly linked to the RBI’s repo rate. The purpose of bringing MCLR was to make the lending rates more transparent and aligned to the RBI’s repo rate determined by its monetary policy committee (MPC).

Any change in the repo affects the banks’ MCLR. Since COVID-19 in 2020, when MCLR reached as low as 7.0 per cent, SBI has revised its MCLR several times. However, other factors also contribute to determining it. That is why SBI has revised its MCLR while there was no change in the repo rate by the RBI. The repo rate remained 6.5 per cent, unchanged for the ninth time during the August MPC meeting.

Who Will Be Affected?

The change will affect all loans linked to MCLR, including home loans, auto loans, and personal loans. The higher rates would mean higher equated monthly instalments (EMIs) for borrowers or a longer repayment period. SBI’s auto loans are linked to a one-year MCLR, where the rate is revised to 8.95 per cent from the previous rate of 8.85 per cent. Home and personal loans are connected to a two-year MCLR, revised from 8.95 per cent to 9.05 per cent.

The borrowers whose loans are linked to the MCLR will need to shell out more from pocket in EMIs to pay back the loan. However, if your loan is connected with the external benchmark lending rates (EBLR), this rate change will not affect you. The EBLR is directly linked with the repo rate, which was last increased by 25 basis points to 6.50 per cent in February 2023. Since then, the RBI has kept it the same. SBI’s EBLR remains at 9.15 per cent as of now.

Since October 1, 2019, the bank has disbursed new loans linked to EBLR, and these loan rates remain intact. However, loans linked with MCLR will need to pay more in EMIs. The bank provides its customers with the option to switch from an MCLR-based leading rate to an EBLR-based lending rate by paying a fee. One may request this from the bank if they so want.

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Revised MCLR rates:

Here is the revised MCLR by the SBI. These are effective from August 15, 2024.

Period                         Existing Rate                          Revised Rate

Overnight                   8.10%                                      8.20%

One month                 8.35%                                      8.45%

Three month              8.40%                                      8.50%

Six months                  8.75%                                      8.85%

One year                     8.85%                                      8.95%

Two years                   8.95%                                      9.05%

Three years                9.00%                                      9.10%

Source: SBI website