New Delhi: The country’s largest bank SBI has increased its loan interest rates. The bank has informed that MCLR (Marginal Cost of Funds Based Lending Rate) on certain tenure loans has been increased by 0.05%. According to the information given on the bank’s website, the one-year MCLR has been increased by 0.05%. This rate has increased to 9% since Friday. One year MCLR is very important for long term loans like buying a house. Recently SBI has increased the MCLR for the second time. There is a competition among banks to attract customers. Due to this the cost of deposits is increasing. Due to this, there is a possibility of further increase in loan interest rates.
According to bank chairman CS Shetty, 42% of the bank’s loans are based on MCLR. The remaining loans are linked to external benchmarks. He also clearly said that the bank will not tempt customers by offering higher interest on deposits because interest rates are already at their peak.
SBI has also increased the three-month and six-month MCLR. However, there has been no change in the MCLR for overnight, one month, two years and three years.
What is MCLR?
If you understand in simple words, MCLR is the minimum interest rate at which any bank or lender can give you a loan. No bank can give loan at an interest rate lower than MCLR. However, relaxation may be given in some cases. But, for that, RBI permission is required.
The objective behind implementing MCLR was to remove the shortcomings of the base rate system and to provide relief to those who want to take loans. This also includes home loan. With this, loan takers get the benefit of interest rates reduced by RBI. MCLR was implemented by replacing the base rate system in April 2016. Its objective was to improve the effectiveness of monetary policy and make the process of setting interest rates transparent.
How will borrowers be affected?
MCLR is directly related to the repo rate and cost of funds of banks. Therefore, any change in the repo rate also impacts the interest rate on your home loan. If any bank reduces MCLR then your home loan interest rate also reduces. There will be no change in your EMI, but the loan tenure will definitely be affected.
How can borrowers navigate rising interest rates when applying for loans with SBI?
Interview: The Rise of SBI’s Loan Interest Rates
Time.news Editor: Good afternoon, and welcome to this special edition of Time.news. Today, we have a distinguished guest with us, Dr. Anjali Sharma, an expert in banking and finance. Dr. Sharma, thank you for joining us.
Dr. Anjali Sharma: Thank you for having me. It’s a pleasure to be here.
Editor: Let’s dive straight into it. SBI, the country’s largest bank, has recently increased its MCLR by 0.05%, bringing the one-year MCLR to 9%. What does this mean for borrowers, especially those looking for long-term loans like mortgages?
Dr. Sharma: This increase in MCLR signifies that the cost of borrowing will rise for consumers. The one-year MCLR is particularly crucial because it affects various loans, especially housing loans that have a long tenure. When the MCLR increases, banks may raise their lending rates, which leads to higher EMIs for borrowers. For potential homebuyers, this could mean reassessing their budgets and financing plans.
Editor: It’s interesting you mention that. This is the second increase by SBI in a short period. What factors do you think are driving these changes in MCLR?
Dr. Sharma: There are several factors at play here. One significant factor is the increasing cost of deposits. Banks are competing for deposits to fund their lending activities, which drives up interest rates on savings accounts and term deposits. When deposit costs increase, banks tend to raise their lending rates to maintain their profit margins. Additionally, changes in the economic environment, inflation expectations, and monetary policy by the Reserve Bank of India also play crucial roles in determining MCLR.
Editor: Given this competitive landscape among banks, how do you foresee the future of loan interest rates? Are we likely to see further increases?
Dr. Sharma: The current trend suggests that we might see further increases. As banks compete for a shrinking pool of deposits, the pressure to raise lending rates could increase. Moreover, if inflation continues to rise, the Reserve Bank may intervene with monetary policy changes, which could also lead to higher interest rates across the board. It’s important for borrowers to stay informed and consider locking in rates if they are planning to take out loans.
Editor: That’s valuable insight. For potential borrowers who might be feeling apprehensive, what advice can you offer?
Dr. Sharma: My advice would be to assess their financial situation carefully. Borrowers should aim to understand their long-term financial commitments and possibly consult with financial advisors to evaluate their options. It might also be a good idea to compare rates across different banks and lenders. Although SBI is a major player, several other banks are also vying for customers and may offer competitive rates.
Editor: Lastly, Dr. Sharma, how important is it for consumers to keep an eye on these banking trends?
Dr. Sharma: It’s crucial! Being proactive and informed can help consumers make better financial decisions. Understanding the banking landscape can allow them to seize opportunities when rates are favorable or prepare for changes when they aren’t. Monitoring these trends can lead to significant savings or better financial planning.
Editor: Thank you so much, Dr. Sharma, for your insights today. It’s been a pleasure discussing the dynamics of the banking sector and how it affects consumers.
Dr. Sharma: Thank you for having me. It was a pleasure to share my thoughts!
Editor: And thank you to our listeners for tuning in. Stay informed and empowered with Time.news as we continue to bring you the latest insights from the world of finance and beyond.