Several banks including State Bank of India (SBI), Axis Bank, Bank of Baroda (BoB) and Kotak Mahindra Bank recently started increasing MCLR.
Several banks including State Bank of India (SBI), Axis Bank, Bank of Baroda (BoB) and Kotak Mahindra Bank recently started increasing marginal cost of funds based lending rate (MCLR) on loan.
The Financial Express reported earlier that SBI raised the MCLR by 10 basis points to 7.1% after three years. Lenders such as Axis Bank, BoB and Kotak Mahindra Bank have increased MCLR rate by 5 bps.
Experts say that increase in MCLR usually increases borrower’s interest payment. In other words, customers will have to pay higher EMIs for their home loan when the reset date comes around. Even auto and personal loans are expected to become more expensive with an increase in MCLR.
“The biggest fear is now knocking at our doors. As if high inflation was not bad enough, interest rates on everything that we consume are expected to rise, Vijay Singhania, Chairman, TradeSmart, told FE Online.
While many banks have announced an increase in the marginal cost of funds based lending rates (MCLR), SBI announcing an increase by 10 basis points across tenures will have a more meaningful impact.
SBI had one of the lowest rates in the market.
“However, the share of MCLR has been reducing and has come down from 62.9 percent in March 2021 to 53.1 percent in December 2021. Most retail loans, including home loans, have moved to external benchmark-linked lending rates (EBLR),” said Singhania.
“Nonetheless, the impact of the hike will be felt on a large section of the borrowers,” he added.
Experts say that higher interest rates are good for the banks as their margins improve. However, if the interest rates continue to rise chances are demand for loans will reduce which has the potential of slowing the economy.
Borrowers on MCLR Loan should check if it benefits them to remain on the loan. These Repo-rate linked loans are cheaper So if the difference between MCLR loan and repo-rated linked loan is substantial, you may make a conversion request with your bank or switch to another lender providing a better rate.
