Other banks are likely to follow the interest rate revision by the SBI in the coming days
Other banks are likely to follow the interest rate revision by the SBI in the coming days
The country’s largest lender, the State Bank of India (SBI), has raised its marginal cost ratio for unit-based loans (MCLR) by 10 basis points (bps), or 0.1% across all tenures, a move that is causing PMIs to rise for borrowers .
Other banks are likely to follow the interest rate revision by the SBI in the coming days.
With the increase, EMIs rise for those borrowers who have borrowed on MCLR, not for those whose loans are linked to other benchmarks.
SBI’s EBLR rate is 6.65%, while its repo-linked lending rate (RLLR) is 6.25 effective April 1.
Banks add credit risk premiums (CRP) via EBLR and RLLR while originating any type of loan, including home and auto loans.
The revised MCLR rate is effective April 15, according to information published on the SBI website.
With the revision, the one-year MCLR has increased to 7.10% from the previous 7%.
An overnight, one-month and three-month MCLR rose 10 basis points to 6.75%, while a six-month MCLR rose to 7.05%.
Most loans are compounded at the one-year MCLR interest rate.
At the same time, the two-year MCLR rose 0.1% to 7.30%, while the three-year MCLR rose to 7.40%.
From 1 October 2019, all banks, including the SBI, will only have to lend at a rate linked to an external benchmark such as the Reserve Bank of India (RBI) repo rate or Treasury Bill yield. As a result, banks’ monetary policy transmission has gained traction.
The impact of the introduction of external benchmark-based credit rating on monetary transmission has been felt in various sectors, including those sectors not directly linked to external benchmark-based credit rating.
“Looking ahead, the proportion of loans linked to external benchmarks is expected to continue to increase, along with a corresponding decrease in loans linked to internal benchmarks. In connection with shorter adjustment periods, a further strengthening of the monetary transfer to the interest rates of the banks can therefore be expected,” according to a recently published RBI article.
