Home loan EMIs set to rise across India because of THIS decision by SBI

Aug. 16, 2024, 8:44 a.m.

Read time estimation: 2 minutes.

  4

Loan repayments have become more expensive for State Bank of India (SBI) customers. This trend might soon affect borrowers at other banks as well.

The State Bank of India (SBI) has announced a 0.1% increase in its Marginal Cost of funds-based Lending Rate (MCLR) for all loan terms. This is the third time in a row that the country's largest lender has raised interest rates.

Effective from August 15, 2024, the one-year MCLR, a key benchmark for setting interest rates on loans like home, car, and personal loans, has been increased to 8.95% from 8.85%. The two-year and three-year MCLRs have also been raised by 10 basis points, now standing at 9.05% and 9.10%, respectively.

SBI has also raised shorter-term MCLRs, including those for overnight, one-month, and six-month loans, by 10 basis points.

MCLR is the lowest interest rate that a financial institution can charge for a specific loan. It establishes the minimum interest rate for loans.

The rate is determined by a bank’s operating expenses, the tenor premium, etc.

SBI’s rate hike comes shortly after the RBI decided to maintain its key policy rate, the repo rate, at 6.5 per cent earlier this month.

The repo rate, which is the interest rate at which the Reserve Bank of India (RBI) lends money to commercial banks, has remained unchanged. However, the increase in the marginal cost of funds based lending rate (MCLR) indicates that banks are responding to rising funding costs and inflationary pressures.

This means that SBI’s tightening interest rate environment could soon be mirrored by other banks.

For borrowers, this means higher monthly payments and a potential strain on household budgets. Prospective borrowers might reconsider taking on new loans due to the possibility of further interest rate increases in the near future.

With inputs from PTI