State Bank of India Raises MCLR, Impacting Home and Auto Loan Borrowers with Higher EMIs

It is common to not have adequate time to cover all the current expenses. You may have recently paid for your child’s education, but now it is time to cover the expenses of your daughter’s marriage. Most individuals rely on taking loans to cover big expenses such as buying a car or house or paying for education or marriage. However, every loan you take comes with an obligation to repay the principal amount along with the charged interest. This interest rate is the profit for the bank or the financial institution that provides you with the loan amount. In India, the State Bank of India (SBI) is the biggest bank that offers a host of loans to individuals at a set interest rate. However, it has recently announced an interest rate hike, directly affecting its credit-taking ability.

If you are a current SBI borrower or looking to take a loan from the bank, it is important to know about the SBI interest rate hike. This blog will help you understand the SBI interest rate hike and how it will affect your future loan applications.

• Banks set interest rates to manage their borrowing costs, maintain profitability, and respond to changes in monetary policy and market conditions.
• SBI recently announced that it has raised its marginal cost of funds-based lending rate (MCLR).
• SBI has raised the MCLR by 10 basis points, which is now the highest for 3-year tenor at 9.10%.

State Bank of India (SBI) is India's largest public sector bank and one of the oldest financial institutions. It was established in 1955 through the nationalisation of the Imperial Bank of India. The bank is headquartered in Mumbai and operates as a public sector bank, with a majority of the stake held by the Indian government. Currently, SBI has a network of 22,000 plus branches, 76,000 BC outlets, and 65,000 ATMs and dominates with 1/4th market share. SBI is known to cater to 480 million customers through its various banking facilities, with the loan system making an integral part. As of August 2024, SEBI had an investment book of over Rs. 16 lakh crore and saw its total advances rise 15% year-on-year to reach Rs. 38.12 lakh crore in Q1FY25.

In August 2024, the State Bank of India announced a 10-basis-point interest rate hike by increasing its marginal cost of funds-based lending rate (MCLR) for certain loan durations. This follows SBI’s June announcement, which was when it previously increased the MCLR. The Marginal Cost of Funds-Based Lending Rate (MCLR) is the minimum interest rate below which banks cannot lend, based on the marginal cost of funds, operating costs, and tenor premium. SBI introduced MCLR in April 2016 to replace the base rate system and improve transparency in loan pricing. The SBI interest rate hike follows the recent interest rate hike and announcements by other banks such as Bank of Baroda, UCO Bank, and Canara Bank.

Here are the new tenor-wise MCLR about the SBI interest rate hike:

Here are the two loan products that will be affected by the recent SBI interest rate hike of 10 basis points:

• Auto loan: Auto loans offered by the SBI are tied to a one-year MCLR. If you take an auto loan from SBI, you must pay a higher EMI.
• Home loan: SBI’s home loans are tied to its two-year MCLR. As it has been increased by 10 basis points, you will have to pay a higher EMI for SBI’s home loans.

When the MCLR rate increases, loan interest rates linked to MCLR, such as home and auto loans, become more expensive, leading to higher EMIs for borrowers. Borrowers with floating-rate loans see an immediate impact as their interest payments rise. Fixed-rate borrowers remain unaffected until their loan reset period. Since SBI has increased its MCLR by 10 basis points effective August 2024, it will directly increase the EMIs for auto and home loan borrowers. Now that you know the recent SBI interest rate hike, you will be able to make better borrowing decisions.

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