SBI Cuts One-Month MCLR: India's Biggest PSU Bank Slashes Lending Rates For October; Check Tenure

State Bank of India (SBI), the country's largest lender, has revised its marginal cost of funds-based lending rate (MCLR), effective from October 15, 2024. In a move that brings relief to short-term borrowers, SBI has slashed the MCLR for the one-month tenor from 8.45% to 8.20%. However, interest rates across all other tenures remain unchanged.

The MCLR for the overnight tenor stands at 8.20% per annum, while the three-month MCLR continues to be 8.50%. For a six-month tenor, the MCLR holds steady at 8.85%. The one-year MCLR remains the same at 8.95%, which is a key rate used for a wide range of retail loans. Similarly, the MCLR for two-year and three-year tenures remains unchanged at 9.05% and 9.10%, respectively, following the revision.

The MCLR cut for the one-month tenure will primarily benefit those looking for short-term loans or credit facilities. For example, businesses that frequently require working capital through short-term loans will see some relief in their interest payments. However, borrowers with longer-term loans, including home loans that are typically tied to the one-year MCLR, will not see any changes in their equated monthly instalments (EMIs) for now.

Since MCLR directly impacts loan interest rates, any changes to these rates also affect borrowers' EMIs. A drop in MCLR, like the one seen for the one-month tenor, reduces the interest burden on loans, thereby bringing down EMIs. Conversely, when MCLR rates rise, EMIs go up, making loans more expensive for borrowers.

While SBI has reduced its one-month MCLR, it is worth noting that HDFC Bank, a key competitor, raised its MCLR for the three-month tenure in September.

The revision comes shortly after the Reserve Bank of India (RBI) held its benchmark repo rate steady at 6.5% during its monetary policy committee (MPC) meeting on October 9. This marks the tenth consecutive meeting in which the RBI has kept the repo rate unchanged. The repo rate is the rate at which the RBI lends money to commercial banks.

Market analysts expect the RBI to cut the repo rate in its upcoming December meeting, signalling the start of a lower interest rate cycle. If this happens, it could lead to broader reductions in MCLR across various tenures, providing further relief to borrowers.

What is MCLR?
The marginal cost of funds-based lending rate, or MCLR, is the minimum interest rate at which a bank is allowed to lend to its customers. Introduced by the RBI in April 2016, MCLR replaced the older base rate system to make loan pricing more dynamic and responsive to changes in the cost of funds for banks.

Under the MCLR regime, banks calculate lending rates based on several factors, including the marginal cost of funds, operating expenses, and the tenor premium, among others. This ensures that lending rates are more closely aligned with the actual cost of raising funds.

However, borrowers who took loans before 2016 are still governed by the base rate or the benchmark prime lending rate (BPLR) system, depending on when their loans were sanctioned. These older systems were phased out to bring in more flexibility and market alignment through MCLR.