State Bank of India (SBI) has increased its marginal cost of funds-based lending rate (MCLR) effective October 15, 2024. The interest rates for all other tenures remain unchanged; however, the MCLR for the one-month tenor has been reduced from 8.45 to 8.20 percent.
The annual interest rate for overnight tenancy is 8.20%. The interest rate for a three-month period is 8.5%. The MCLR has remained at 8.85 percent during the past six months. For a one-year term, the MCLR remains at 8.95%. The two-year MCLR would be 9.05 percent following the rate change. The three-year MCLR rates would be 9.10 percent following the rate change.
It is worth mentioning that in September, HDFC Bank upped its 3-month MCLR. Meanwhile, the RBI’s monetary policy committee (MPC) maintained the benchmark repo rate at 6.5 percent for the tenth day in a row on October 9.
The banking regulator is likely to drop the repo rate at its next meeting in December, setting the stage for a lower interest rate cycle. For the uninitiated, the marginal cost of funds-based Lending Rate is the lowest lending rate that a bank may not give. The MCLR replaced the previous base rate mechanism for determining lending rates for commercial banks. The RBI established the MCLR on April 1, 2016, to set interest rates for loans.
What is the MCLR?
In 2016, the RBI replaced the base rate structure with MCLR-based lending rates. Borrowers who took out loans before to 2016 are still subject to the base rate or benchmark prime lending rates (BPLR), as applicable. The BPLR was created in 2003 and was eventually replaced by the base rate in 2010.The current interest rate regime is determined by the MCLR, which, as previously stated, was implemented in April 2016.
Your loan EMIs increase when MCLR rates rise. Because MCLR rates are more dynamic, every change in these rates causes adjustments in interest rates, which affect loan EMIs.