After the latest rate hike, the MCLR has increased from 7.35 per cent to 7.60 per cent for overnight, one-month and three-month tenures. The MCLR has been increased from 7.65 per cent to 7.90 per cent for a tenure of six months. The MCLR for the tenure of one year has increased from 7.70 per cent to 7.95 per cent. The MCLR for the two-year tenure has been increased from 7.90 per cent to 8.15 per cent, while the MCLR for the three-year tenure has been increased from 8 per cent to 8.25 per cent after the revision.
The MCLR with effect from 15 October 2022 will be as follows:
| tenure | Existing MCLR (in %) | Revised MCLR (in %) |
| whole night | 7.35 | 7.6 |
| a month | 7.35 | 7.6 |
| three months | 7.35 | 7.6 |
| six months | 7.65 | 7.9 |
| one year | 7.7 | 7.95 |
| two years | 7.9 | 8.15 |
| three years | 8 | 8.25 |
Source: SBI WebsiteWhat is MCLR?
MCLR or Marginal Cost of Funds-Based Lending Rate is the minimum rate at which banks can lend to customers. The Reserve Bank of India (RBI) introduced MCLR in 2016 to set interest rates for various types of loans. It is an internal reference rate for banks to offer loans at a competitive and transparent rate. Banks were disbursing MCLR linked home loans till September 30, 2019.
Pramod Kathuria said, “The marginal cost of funds-based lending rate is the benchmark rate of interest for lending by banks. This essentially creates the minimum rate of interest at which the bank can lend without further reducing rates. ” Founder and CEO, EasyLoan.
What will be the effect of hike in MCLR on borrowers?
Any revision in the MCLR will directly affect the cost of the loan as it implies an increase in the loan interest rate. If the interest rate on the loan increases, the EMI will automatically increase unless the bank reduces its mark-up/margin on the loan. Hence, borrowers will now have to pay more to pay EMIs for MCLR linked loans.
For existing borrowers with MCLR linked loans, the increase in MCLR will impact their EMIs when their personal loan reset date approaches. Generally, MCLR based loans are linked with a tenure of 6 months or one year. On the reset date, banks usually calculate the future EMI based on the prevailing MCLR rate. Note that the future EMI (till the next reset date) is calculated based on the effective interest rate (MCLR rate plus margin effective), outstanding loan amount and the loan tenure remaining on the reset date. Lenders are free to ask for a markup higher than the MCLR, but the interest rate charged for the loan cannot be less than the MCLR.
New borrowers will have to pay higher EMIs for their loans when they are linked to MCLR.
‘Low interest loan system ended’
Banks have started increasing the MCLR after the RBI hike in the repo rate in September.
To fight rising inflation, Reserve Bank of India hiked the repo rate by 50 basis points on September 30, 2022. This was the fourth repo rate hike in five months starting May. Bankbazaar.com CEO Adil Shetty says, “The recent hike in repo rates will make funding costlier for existing and new borrowers. All home, car, personal and education loans at floating rates for existing borrowers will become more expensive.”
Raj Khosla- Founder & MD – mymoneymantra.com.