EMIs on home, car loans to get costlier

Major lenders hike marginal cost of funds-based lending rate by 0.10-0.20%.

Mumbai : Banks led by State Bank of India (SBI) have raised their Marginal Cost of Funds-based Lending Rate (MCLR), signalling a rise in equated monthly installments (EMI) on home and car loans.

A day after hiking deposit rates by up to 75 basis points, SBI has increased the one-year MCLR by 20 basis points (bps) to 8.15 per cent from 7.95 per cent. ICICI Bank increased the one-year MCLR from 8.2 per cent to 8.3 per cent and overnight MCLR rate from 7.8 per cent to 7.95 per cent.

“New loans will cost more as they are linked to one-year MCLR,” said an ICICI Bank official said.

Punjab National Bank (PNB) hiked its one-year MCLR from 8.15 per cent to 8.30 per cent, three-year MCLR from 8.30 per cent to 8.45 per cent, and for five years from 8.45 per cent to 8.60 per cent. Earlier, Axis Bank had raised its MCLR by 0.10 per cent.

The lending rate hike also comes in the wake of banks as a whole seeing pick-up in credit demand.

After many years of low single-digit credit growth, the quarterly loan demand crossed the double-digit mark at close to 11 per cent in the three months to December 2017.

In addition to the Base Rate system followed by commercial banks, the Reserve Bank of India (RBI) introduced the MCLR from April 1, 2016, whereby rates are fixed for a one-year period and revised only at the end of each year.

The central bank introduced the MCLR as a system working in tandem with its policy rates, which commercial banks have been slow in accepting, preferring to continue with the Base Rate regime.

In yet another measure to speed up retail transmission by banks of the central bank’s cuts in lending rate, the RBI said earlier this month that it will link the Base Rate with the MCLR from the next fiscal.

Since the MCLR is more sensitive to policy rate changes, the RBI has decided to harmonise the methodology of determining benchmark rates by linking the Base Rate to the MCLR with effect from April 1, 2018, the central bank said following announcement of the fiscal’s final bi-monthly monetary policy review at which it kept its key lending rate unchanged at 6 per cent.