State Bank of India (SBI) has increased its ‘External Benchmark-Linked Lending Rate’ (EBLR) by 25 basis points to 8.15 percent. It does not include credit risk premium (CRP) and bank spread (BSP). Meanwhile, the country’s largest public sector bank State Bank of India (SBI) has increased its lending rates. This step has been taken by the Reserve Bank of India (RBI) after increasing the repo rate by 25 basis points last week. SBI has increased its ‘External Benchmark-Linked Lending Rate’ (EBLR) by 25 basis points to 8.15 percent (this does not include credit risk premium and bank spread). Apart from this, ‘Repo Linked Lending Rate’ (RLLR) has also been increased by 25 basis points to 7.75 percent (CRP is not included in this). The bank has also changed its ‘Marginal Cost of Funds-Based Lending Rates’ (MCLR) by 15 basis points for certain tenures. Overnight (for one night) and one month MCLR rates remain the same at 7.85 percent. At the same time, the 3-month MCLR has been increased from 8.25 percent to 8.40 percent, while the six-month rate has increased from 8.60 percent to 8.75 percent. One year MCLR has been increased from 8.70 percent to 8.85 percent. MCLR rates of 2 years and 3 years have also been increased by 15 basis points, making them 8.90 percent and 8.95 percent respectively. Changes in loan rates are certain due to increase in rates by RBI. This change has come after the decision of RBI, in which the benchmark repo rate was increased by 25 basis points to 5.50 percent on October 7. This move reflects a shift towards a tighter monetary policy. Repo rate is the interest rate at which RBI lends money to commercial banks. The increase in this rate increases the cost of funds for banks, the effect of which can ultimately be seen in the form of increase in loan rates for the borrowers. Loans linked to external benchmarks like repo rate may increase for consumers. Loans linked to external benchmarks reflect changes in policy rates more quickly than loans linked to MCLR. MCLR is influenced by banks’ cost of funds and other factors. For borrowers with loans linked to EBLR or RLLR, this change in rates could mean paying more interest. This will depend on the terms of their loan and the next ‘reset’ date. If banks increase the applicable interest rates, the monthly installments (EMIs) of home loan borrowers may increase. Additionally, depending on the repayment terms of the bank, the borrower can continue paying the same EMI for a longer period. Impact on monthly installments: Its impact on MCLR linked loan borrowers will depend on the respective benchmark tenure and the ‘reset’ date of the loan. Since SBI has increased the MCLR for some select periods, the impact of this change will not be the same on all borrowers. Borrowers should check their loan agreement and the changed interest rates to understand how it will impact their monthly instalments.
