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SBI raises lending rates, EMIs to go up

SBI raises lending rates, EMIs to go up

Under the present loan pricing mechanism that is based on the marginal cost of funds-based lending rates (MCLR), any upward revision in the cost of funds, including deposits pricing automatically leads to a pricing revision in loans. Deposit rate on one-year deposits of over Rs 1 crore has risen by 200 basis points to 6.25 per cent in just over two months - between December and January. 15 percent. While PNB has increased the MCLR by 15 basis point.

Following SBI, ICICI too raised its overnight MCLR by 15bps and one-year MCLR by 10bps, while Punjab National Bank (PNB) hiked its one-year MCLR by 15bps.

For two-year and three-year tenor, the new MCLR is 8.25 per cent and 8.35 per cent, respectively. The room for other banks to increase deposit rates is also there. One basis point is one-hundredth of a percentage point.

The latest revision, which follows three consecutive revisions of bulk term-deposit rates by the lender in the past three months, signals a hardening of interest rates across the banking system.

Bankers and analysts attributed the reason for the increase in deposit rates to tight banking system liquidity conditions. The actual home loan interest rate can be equal to the MCLR or have a "mark-up" or "spread", but can never be lower than the MCLR.

As an existing or a new home loan borrower, if you are expecting a reduction in home loan interest rates, you could be disappointed. The new lending rate system is applicable on all home loans, auto loans, education loans and personal loans taken after April 2016. The banks have no option but to raise lending rates to insulate their profitability against the provisioning of bad loans.

The bulk deposits for one-year maturity has been increased to 6.75% from 6.50%.

The move comes in the same day when the industry leader SBI increased the lending rates by 20 bps to 8.15 per cent. However, this is the first time after demonetisation that the bank has raised term deposit rate on amounts below Rs1 crore.


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