SBI Customers To See Faster Revision In EMIs; MCLR Reset Cycle Shortened

Customers of the State Bank of India (SBI) will be able to receive the benefits of RBI repo rate cuts faster now that the public sector bank has adopted a 6-month MCLR reset frequency instead of one year.

"Enjoy the benefits of a reduction in the interest rate without waiting for a year. SBI has reduced the MCLR reset frequency from 1 year to 6 months. Borrowers need not wait for a year to avail the benefit of falling interest rate," said the bank in a tweet on Friday.

What is MCLR? Why does the change matter?

MCLR or Marginal Cost of Funds based Lending Rate is the minimum interest rate set by the bank below which it will not lend. While interest rates are determined based on the risk factors associated with each individual, it cannot go below the MCLR in cases where rates are based on the MCLR system.

The rate will differ based on tenure and is pre-determined by the bank.

Most retail loans like home loans, vehicle loans, etc are based on 1-year MCLR. With SBI's decision to move from one-year MCLR to 6-month MCLR, SBI customers will benefit from the faster transmission of changes in RBI's repo rate. In this way, those opting for MCLR linked loans will also be able to benefit from frequent changes in lending rates like those who have opted for loans linked to a market-based benchmark.

For example, when your home loan is linked to MCLR and your interest rate reset date falls in January, you will not have benefited from any lending rates cuts made due to coronavirus pandemic yet. Your EMI will be reset in next January only. With 6-month MCLR, your EMI will be revised in July as well as January.

SBI's next monthly revision of MCLR is due on 10 September 2020.