Several banks including State Bank of India (SBI), Axis Bank, Bank of Baroda (BoB) and Kotak Mahindra Bank have recently started raising the marginal cost of funds based on lending rate (MCLR) on loans.
The Financial Express reported earlier that the SBI had raised the MCLR by 10 basis points to 7.1% after three years. Lenders such as Axis Bank, BoB and Kotak Mahindra Bank raised the MCLR rate by 5 basis points.
Experts say that increasing the MCLR generally increases the borrower’s interest payment. In other words, customers will have to pay higher EMIs for their home loan when the reset date arrives. Even auto and personal loans are expected to become more expensive with an increase in MCLR.
“The greatest fear is now knocking at our doors. As if high inflation weren’t enough, interest rates on everything we consume are set to rise, Vijay Singhania, president of TradeSmart, told FE Online.
While many banks have announced an increase in the marginal cost of funds-based lending rates (MCLR), the SBI’s announcement of a 10 basis point increase across all mandates will have a more significant impact. .
SBI had one of the lowest rates in the market.
“However, the MCLR share has declined from 62.9% in March 2021 to 53.1% in December 2021. Most retail lending, including home loans, has moved to external lending rates linked to references (EBLR),” Singhanie said.
“Nevertheless, the impact of the rise will be felt by a large proportion of borrowers,” he added.
Experts say higher interest rates are good for banks because their margins improve. However, if interest rates continue to rise, there is a good chance that the demand for loans will decrease, which could slow the economy.
Borrowers on the MCLR loan should check if it is beneficial for them to stay on the loan. These loans linked to the repo rate are cheaper. So, if the difference between the MCLR loan and the repo rate linked loan is significant, you can request a conversion from your bank or switch to another lender offering a better rate.