1 PSB, 1 Private Bank: EMIs To Go Up As 2 Banks Hike Lending Rates; What Is MCLR?

Two banks have hiked their Marginal Cost of Funds Based Lending Rate (MCLR) with effect from September 1, 2023, by 5 basis points each across tenures. These lenders will be ICICI Bank and Punjab National Bank (PNB). Following the hike, EMIs on term loans such as home loans, personal loans, car loans, and gold loans among others that are linked to MCLR will also get costlier ahead.

MCLR rates have been hiked despite RBI retaining repo rate at 6.5% for the third consecutive policy in August.

ICICI Bank MCLR rates:

Leading private sector lender, ICICI Bank hiked MCLR rates by 5 bps across tenures. 1-year MCLR rate is now at 8.95%, while the six-months MCLR is set at 8.85% with effect from September 1, 2023.

Three-month MCLR is kept at 8.50%. While one-month MCLR is at 8.45%.

For overnight tenure, MCLR is also set at 8.45%.

PNB MCLR rates:

Just like ICICI Bank, PNB has also hiked its MCLR rates by 5 bps across tenures.

For a 3-years tenure, MCLR is at 8.95% with effect from September 1, 2023, from earlier 8.90%. 1-Year MCLR is now at 8.65% from earlier 8.60%.

Meanwhile, the six-month MCLR is at 8.55% from 8.50%. Furthermore, three-months MCLR is at 8.35% from the previous 8.30%.

Also, MCLR is now at 8.25% on one-month tenure from earlier 8.20%, and for overnight, the MCLR rate is 8.15% from the previous 8.10%.

What is MCLR?

MCLR is the minimum interest rate for term loans below which banks are not permitted to lend to borrowers. When banks revise MCLR, the interest rates on loans linked with this benchmark are also changed.

But, not every borrower will be impacted by this MCLR hike.

With effect from April 1, 2016, all floating rate rupee loans sanctioned and renewed were directed by RBI to be priced with reference to the Marginal Cost of Funds based Lending Rate (MCLR) which was introduced as the internal benchmark for banks.

On its website, ICIC Bank said that MCLR is an internal rate for banks, as per RBI regulation and is regulated by the RBI every month. It has an annual reset rate under a 1-year MCLR and the home loan rates offered by each bank may be dependent on this rate.

However, from October 1, 2019, RBI introduced external benchmark lending rates including linking lending rates with policy repo rates. And directed the scheduled commercial banks to transmit to external benchmarks since MCLR did not deliver effective transmission of monetary policy. However, existing loans and credit limits linked to the MCLR/Baserate/BPLR will continue till repayment or renewal, as the case may be.

Accordingly, those borrowers whose loans are linked with MCLR will only see the change in the rate hikes.