SBI Rate Hike Alert: MCLR Increased By Up To 10 Bps, Check How This Will Impact Your Next EMI Payment

India's largest public sector lender State Bank of India (SBI) on Friday (December 15) increased the marginal cost of funds-based lending rate (MCLR) on certain tenures by 5-10 basis points (bps). The latest hike in MCLR by SBI will make most consumer loans (such as auto or home loans) costlier for borrowers. The new SBI MCLR rates are effective from December 15.

According to the SBI's website, starting today, MCLR on one-year tenure is hiked to 8.65% from earlier 8.55%. MCLR on other tenures has also been changed.

MCLR on one-month and three month's tenure has been hiked from 8.15% to 8.20%. MCLR on six-month tenure has been hiked to 8.55% from 8.45%. The MCLR on Two Years tenure has been hiked to 8.75% from 8.65%. For Three Year's tenure, the MCLR has been hiked to 8.85% from 8.75%.

The lender's decision to hike rates comes after the RBI Governor Shaktikanta Das-led monetary policy committee (MPC) kept the repo rate unchanged for the fifth time at 6.5% on December 8, 2023.

Here is a look at SBI's Tenor-wise revised MCLR effective from 15th December 2023:

Tenor	Existing MCLR (In %)	Revised MCLR (In %)
Over night	8.00	8.00
One Month	8.15	8.20
Three Month	8.15	8.20
Six Month	8.45	8.55
One Year	8.55	8.65
Two Years	8.65	8.75
Three Years	8.75	8.85

How Rise In MCLR Rates Impact Your EMI payment?

Usually, when banks raise their MCLR, it becomes likely that borrowers have to pay higher equated monthly installments (EMIs) for loans that are linked with MCLR.

The Marginal Cost of the Fund-Based Lending Rate is the minimum interest rate a bank or any other financial institution asks a borrower to pay on a specific loan. Before MCLR, banks in India used 'Base Rate' to decide the minimum lending rate for most loans.

The base rate system was replaced by the MCLR system in April 2016 to improve the effectiveness of monetary policy transmission and ensure transparency in the interest rate-setting process.

MCLR allowed borrowers, including those seeking home loans, to take advantage of rate cuts levied by the RBI. Notably, a hike in the repo rate usually leads to a higher MCLR, ultimately resulting in higher lending rates.

When MCLR is revised, the interest rate on loans associated with it also follows suit. Thus, either the EMI amount will rise or it will fall depending on the direction of the MCLR adjustment.

Generally, a lowered MCLR results in reduced interest rates, leading to lower EMIs for borrowers. Contrarily, high MCLR results in elevated interest rates along with higher EMIs for borrowers.

One should note that since May last year, the central bank implemented six consecutive rate hikes, totaling 250 basis points, before finally pressing the pause button in April.