Against the SBI's move which brought a rate cut to pass on the benefits of key policy rates to end borrowers, many private sectors have say for instance Axis Bank has upped its MCLR rate based on which long term loans such as home loan, education loans etc are charged.

This has come as banks are hurt on the margin front in the light of worsening assets quality and in recent time also confronting huge mark to market losses.

MCLR is a recent regime which has replaced the earlier base rate in 2016. The re-set option with the MCLR rate which fixes the loan to the MCLR rate for a year with change thereon is a better option as it aims to bring in the transmission of benchmark rates such as repo rate on a more real time and actual level.

Not only Axis Bank but other private sector banks Yes Bank, IndusInd Bank, Kotak Mahindra Bnak have also increased MCLR with effect from January 18 by as much as 5-10 bps. Other banks are also likely to follow suit.

Another reason for the hike as cited in one of the leading business daily report is higher payment on CDs by banks.

Real impact on borrowers

MCLR has 7 different tenures and the major benefit with the MCLR rate is the reset which prices loans as per the lending rates only at certain tenures that correspond to the tenure of the loan this was not true for initial base rate which reflected changes in lending rate on an immediate basis.

Goodreturns.in