The lending rate hike by these banks — which comes after a gap of around three years — is likely to be followed by others, which will push up the Equated Monthly Installments (EMIs) for different categories of loans to consumers.
The country’s largest lender SBI has revised its marginal cost of funding based lending rate (MCLR) by 0.10 per cent across tenors. The bank revised the lending rate from 7 per cent to 7.10 per cent for the one-year tenure.
The revised MCLR is effective from April 15, as per information posted on SBI’s website.
The overnight, one-month and three-month MCLRs also rose by 10 basis points (bps) to 6.75 per cent, whereas the six-month MCLR increased to 7.05 per cent.
The two-year MCLR increased by 0.1 per cent to 7.30 per cent, and the three-year MCLR rose to 7.40 per cent, as per SBI’s new rate chart.
Bank of Baroda (BoB), Axis Bank and Kotak Mahindra Bank have also hiked the benchmark one-year MCLR — against which most of the consumer loans are priced — by 0.05 per cent each.
State-owned BoB’s new MCLR for one year tenure stands at 7.35 per cent with effect from April 12, 2022.
Private sector Axis Bank and Kotak Mahindra Bank have revised the one-year MCLR to 7.40 per cent with effect from April 18 and April 16, respectively.
EMIs linked to the MCLR would see a slight increase, but loans taken against other benchmarks like EBLR and RLLR will continue to be static.
SBI’s EBLR (external benchmark based lending rate) rate is 6.65 per cent, while the repo-linked lending rate (RLLR) is 6.25 per cent, effective April 1.
Banks add Credit Risk Premium (CRP) over the EBLR and RLLR while giving any kind of loan, including housing and auto loans.
For effective transmission of monetary policy rates to borrowers, the RBI asked banks to shift to EBLR mechanism for pricing loans.
From October 1, 2019, all banks including SBI have to lend only at an interest rate linked to an external benchmark, such as RBI’s repo rate or Treasury bills yield. As a result, monetary policy transmission by banks has gained traction.
The impact of the introduction of external benchmark-based pricing of loans on monetary transmission has been felt across various sectors, encompassing even those segments that are not directly linked to external benchmark-based loan pricing.
“Looking ahead, the proportion of loans linked to external benchmarks is expected to increase further along with a commensurate fall in the internal benchmark linked loans. Coupled with shorter reset periods, monetary transmission to banks’ interest rates can, thus, be expected to strengthen further,” a recently released article by RBI said.
Interest rates are expected to harden in the coming months as global inflationary fears have been stoked due to geopolitical tensions, mainly due to the Russian invasion of Ukraine. This prompted the Reserve Bank earlier this month to raise the inflation target.
Even as it kept unchanged the key repo rate or the short term lending rates to banks, RBI said going further it will focus on withdrawal of accommodation to ensure that inflation remains within the target.
The RBI has been mandated to keep the retail inflation at 4 per cent with bias of 2 per cent on either side.