Sbi’s home loan set to rise as lender raises interest rates

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By CNBCTV18.com STI (Update)

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SBI’s overnight MCLR at three months increased from 7.15% to 7.35%, while the MCLR at six months increased from 7.45% to 7.65%.

The State Bank of India or SBI, the largest lender in the country, has raised the lending rate based on the marginal cost of funds or MCLR on loans by up to 20 basis points (bps) effective today . As a result, equated monthly payments (EMI) will become expensive for those who benefit from loans compared to MCLR.

The SBI also increased its external benchmark lending rate (EBLR) and repo-linked lending rate, effective today.

What is the increase?

The lender raised overnight MCLR rates to three months to 7.35% from 7.15%. The SBI’s six-month MCLR was raised to 7.65% from 7.45%. Additionally, the one-year MCLR was increased to 7.7%, two-year to 7.9% and three-year to 8%.

Who will be impacted?

As mentioned, EMIs will be expensive for those who take out loans against the MCLR. The one-year MCLR is imperative because long-term loans from a bank such as home loans are tied to this rate.

There is a reset period for MCLR-based home loans after which rates are reset for the borrower. SBI generally offers a one-year rest period for loans based on the MCLR. For borrowers, this means that SBI will have to reprice interest rates on loans after 1 year to reflect any change in the external benchmark rate.

Why are banks raising their rates?

Along with SBI, other banks are also increasing lending rates.

The move comes after the Reserve Bank of India (RBI) raised its benchmark policy rates by 50 basis points earlier this month to rein in headline inflation. With this rise in repo rates and the two previous increases, overall lending rates jumped at least 190 basis points, or 1.9%.

Why are home loans impacted by RBI’s decision?

Typically, when RBI increases the repo rate, it increases the cost of funds for banks. This means banks will have to pay more for the money they borrow from RBI. Therefore, banks pass the cost on to borrowers by raising the interest rates on their loans, making EMIs more expensive.

As a result, new and existing borrowers are witnessing an increase in their interest rates on home loans.

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