Now your home loan, auto loan and personal loan will be costlier from Friday as country’s largest bank State Bank of India (SBI) increased lending interest rates by 10 basis points (bps) across all tenures up to three years. The new rates will be effective from June 1, according to the bank.
Two days after a hike in deposit rates, SBI took the move to make consumers’ Equated Monthly Installment (EMI) costlier in some way or the other. It is, however, expected that other banks, both private and public sector banks, are likely to follow suit as most banks are facing higher costs of borrowing from the market.
Meanwhile, HDFC also increased its retail prime lending rate (RPlR) on Friday, on which its adjustable rate home loans (ARHl) are benchmarked, by 10 bps. HDFC said in its statement that the new rates would be effective from June 2, 2018.
Reacting to the development, a senior banker from a public sector bank told The Pioneer, “We have no option but to increase the lending rates. We face almost higher cost of borrowing in the this sector. That is why we have to pass this burden to the customers in some way or the other.”
For existing borrowers, the hike in MClR will impact their EMIs when the reset dates arrive for their loans. The reset date is set by between the bank and the borrowers as per the loan agreement which is usually 6 months or one year. The future EMIs (till next reset date) are calculated on the basis of the MClR rate plus margin effective on the reset date.
RBI’s mandate says, all loans including home loans taken after April 1, 2016 are to be linked with MClR. The banks are free to ask for a mark-up over and above the MClR. However, the rate charged on the loans cannot be less than the MClR. Generally, one bps is one hundredth of a percentage point. The overnight and 1-month tenure marginal cost of funds based lending rate (MClR) have been raised to 7.90% (from 7.80%), 3-month tenure rate is 7.95% (from 7.85%) while 6-month tenure is 8.10% (from 8.00%) per annum, as per SBI. The bank had last time revised its MClR by up to 25 bps with effect from March 1, 2018. For one, two and three years, the MClR has been hiked to 8.25%, 8.35% and 8.45%, respectively. Base rate has been kept unchanged since its last revision on April 1, 2018 from 8.65% to 8.70%.