SBI hikes lending rates on loans from today, EMIs to go up

State Bank of India or SBI, India's biggest lender, increased marginal cost of funds based lending rate or MCLR on loans with effect from today, a move that will make EMIs expensive for those who availed loans benchmarked against the MCLR. 

The one-year MCLR is considered important from a retail loans perspective, as a bank's long-term loans like home loans are linked to this rate.

The overnight to three-month SBI MCLR rate has been hiked to 7.35%, from 7.15%.

The SBI six-month MCLR goes up to 7.65% from 7.45%, one-year to 7.7%, from 7.5%, two-year to 7.9% from 7.7% and three-year to 8% from 7.8%.

Last month, SBI had raised the marginal cost of fund based lending rates by 10 basis points across various tenors.

MCLR came in April 2016 wherein the banks were given a formula to calculate their cost of funding and then conduct monthly reviews of their offerings across various tenors. 

Each bank calculates its MCLR by taking into account factors such as its incremental cost of raising funds (say, via deposits) and operating expenses, among others.

The MCLR was later replaced by the external benchmark linked rate so that lending rate moves directly in sync with policy moves. 

All existing floating rate bank loans are linked to the MCLR or the external benchmark-based lending rate (EBLR) or the base rate.

EBLR loans have to be linked to an external benchmark, which is the repo rate (the rate at which the RBI lends to banks) in case of retail loans. A bank's EBLR is repo rate plus a spread plus a credit risk premium.