Home Loan EMIs To Rise? 118-Year Old PSB Hikes MCLR Rates By 5 Bps Across Tenure, 1-Year Rate At 8.80%

Despite RBI holding the status quo on the repo rate for the sixth time in a row, 118-year-old Canara Bank hiked its Marginal Cost of Funds Based Lending Rate (MCLR) by 5 basis points across tenures. The new interest rates of the lending benchmark have come into effect from February 12, 2024.

Latest MCLR Rates:

In its regulatory filing, Canara Bank said, the the Marginal Cost of Funds Based Lending Rate (MCLR) of the bank with effect from February 12, 2024, shall be as under:

Longer Tenure MCLR:

- 1-Year MCLR at 8.85% from earlier 8.80%.

- 2-Year MCLR now at 9.15% from earlier 9.10%.

- 3-Year MCLR is now at 9.25% from the previous interest rate of 9.20%.

For Lesser Than 1-Year Tenures:

- Six-month MCLR is now at 8.65% from earlier 8.60%.

- Three-month MCLR is now at 8.30% from earlier 8.25%.

- One-month MCLR is now at 8.20% from earlier 8.15%.

- Overnight MCLR is now at 8.10% from earlier 8.05.

Latest Repo Rate:

Last week, RBI decided to keep the repo rate unchanged at 6.5% for the sixth time in a row. That being said, RBI makes no hike or cut in repo rate throughout the financial year 2023-24.

Accordingly, the policy repo rate under the liquidity adjustment facility (LAF) is unchanged at 6.50%. The standing deposit facility (SDF) rate remains unchanged at 6.25%, and the marginal standing facility (MSF) rate and the Bank Rate at 6.75%.

Further, five out of six MPC members voted to continue the policy stance. Hence, the MPC decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth.

Will Home Loan EMIs Rise At Canara Bank?

Technically, not every borrower will be impacted by the hike in MCLR rates.

With the hike in MCLR rates, the equated monthly instalments (EMIs) are likely to go up on term loans such as home loans, personal loans, and car loans among others.

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 since the majority of banks have linked their term loans with RBI policy repo rate, the latest hike in MCLR will only impact those who have loans linked to the benchmark. Borrowers whose loan rates are linked to Repo Rate will not be affected.

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

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.

Hence, not all borrowers will be affected by the hike in MCLR by Canara Bank.

Over the years, Canara Bank has been scaling up its market position to emerge as a major Financial Conglomerate with as many as thirteen subsidiaries/sponsored institutions in India and abroad. As at December 2023, Canara Bank services over 11.30 crore customers through a network of 9,585 branches and 12,120 ATMs/Recycler spread across all Indian states and Union Territories.