Kotak Mahindra Bank hikes lending rates. Loan EMIs to increase further

Kotak Mahindra Bank has increased its lending rates by 5 basis points across tenures. The revised Marginal Cost of Funds based Lending Rates(K-MCLR) will be in effect from today, 16 March.

The private lender has increased the overnight K-MCLR to 8.25%. Whereas, the rate for one month has been increased to 8.50%.

THe KMCLR for three months duration is set at 8.65% and for six month tenure, the rate is fixed at 8.85%.

The bank has set the rate for one, two, and three year tenure at 9.05%, 9.10%, and 9.25%.

Marginal Cost of Lending Rate is the minimum rate at which a bank is allowed to lend money to the customers.

The financial institution is not allowed to lend money below that rate.

MCLR system was established by the Reserve Bank of India provide minimum flooring on lending rates in different types of loans.

In addition to Kotak Mahindra Bank, several other commercial banks have also raised their lending rates after the Reserve Bank of India announced the hike in benchmark policy rates.

According to a report by India Ratings, given a sharp rise in banks' marginal cost of funds, the system-wide lending rates are set to shoot up by 100-150 bps next fiscal, expediting the monetary policy transmission as the Reserve Bank has increased the policy rates by 250 bps since May last.

The lending rate increases will be mostly in the marginal cost of funds-based lending rate (MCLR) segment of the credit market, it said.

While banks have passed on most of these policy rate hikes to borrowers, they have not been doing so when it comes to deposits, which has led to a system-wide decline in funds, forcing banks to raise money from the market at a much higher cost.