SBI Increases One-Year Base Lending Rate

January 16th

India’s largest nationalised bank, State Bank of India (SBI) has increased its one-year Marginal Cost of Funds lending rate (MCLR) by 10 basis points for home loans with effect from January 15, 2023. MCLR is the minimum interest rate set by the bank below which it cannot lend.

According to a notification sent out by the bank, the MCLR on one-year tenure has surged to 8.4 per cent with effect from January 15, a one tenth of a percent increase from the prior year, while the MCLRs on other tenures have remained stable. The new interest rates, effective from January 15 are given as follows:

Tenure Revised MCLR
Overnight 7.85%
One Month 8.00%
Three Month 8.00%
Six Month 8.30%
One Year 8.40%
Two Years 8.50%
Three Years 8.60%

Just three months ago, SBI hiked the MCLR rate by 15 basis points across the board, making most consumer loans costlier for borrowers.

The one-year MCLR, is used as a floor benchmark for setting home, auto, and personal loans.
Indeed, all floating-rate loans, such as home loans and loans against property, etc., are typically linked to MCLR. Loans based on MCLR typically have a clause in the loan sanction documents permitting reset based on this benchmark.

The Reserve Bank of India (RBI) introduced the MCLR methodology to fix interest rates for advances on April 1, 2016. It replaced the base rate system introduced in July 2010. Banks must review and publish their MCLRs of different maturities every month.

What this means is that most loans will go up, and with SBI being a leader in the banking industry, it is likely other financial institutions will follow-suit.

The increase reflects the increasing inflationary pressures on the Indian economy – this after a brief period in which rates had come down prior to the outbreak of the Covid-19 pandemic. While the economy is doing better, now, in general, inflation continues to rise, making the cost of borrowing more expensive.

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