India’s largest lender, State Bank of India (SBI) and some of the other large banks have started increasing their benchmark lending rate — the marginal cost of funds-based lending rate (MCLR) .
- The move will make customers pay more on their housing, auto, and other retail loans.
- SBI increased its MCLR by 10 basis points, with effect from April 15, across all tenors (100 bps = 1 percentage point).
- This is the first instance of a lending rate hike by SBI in more than three years.
What is MCLR ?
- The MCLR is a benchmark interest rate, which is the minimum rate at which banks are allowed to lend. Most loans are linked to the one-year MCLR.
- MCLR was instituted by RBI with effect from April 1, 2016.
- It is applicable to fresh corporate loans and floating rate loans taken before October 2019. RBI then switched to the external benchmark linked lending rate (EBLR) system where lending rate is linked to benchmark rates like repo or Treasury Bill rates. Most loans are linked to the one-year MCLR
- Though declining, the share of MCLR-linked loans remains the largest, 53.1% in December 2021, in banks’ books, RBI data show.
- For SBI, the share of MCLR-linked loans is estimated at just over 40%. The proportion of floating-rate loans linked to the external benchmarks rose to 39.2% in December 2021 from 28.6% in March 2021.
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