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SBI's loan EMI set to rise as lender hikes interest rates

SBI's loan EMI set to rise as lender hikes interest rates

SBI's loan EMI set to rise as lender hikes interest rates
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By CNBCTV18.com Nov 16, 2022 8:57:34 AM IST (Published)

SBI loans: The benchmark one-year MCLR, which is used as base for fixing most of home, auto and personal loans, has been raised by 10 basis points (bps) to 8.05 percent, as against 7.95 percent earlier.

State Bank of India (SBI) has raised the marginal cost of funds-based lending rate (MCLR) by 15 basis points across tenors, making most consumer loans costlier for borrowers.

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What is the increase?
As a result, the benchmark one-year MCLR, which is used as base for fixing most of home, auto and personal loans, has been raised by 10 basis points (bps) to 8.05 percent, as against 7.95 percent earlier. Likewise, the two-year and three-year MCLRs have been raised by 10 basis points each to 8.25 percent and 8.35 percent, respectively, SBI said in a notification on its website.
Among others, one-month and three-month MCLRs have been increased by 15 basis points each to 7.75 per cent. The six-month MCLR is up by 15 basis points at 8.05 percent while the overnight rate is higher by 10 basis points at 7.60 percent.
Who will be impacted?
As mentioned, EMIs will get expensive for those who take loans against the MCLR.  There is a reset-period for MCLR based loans, after which the rates get revised for the borrower.
Why are banks raising rates?
Along with SBI, other banks are also raising lending rates.
This decision comes in the wake of Reserve Bank of India (RBI) increasing benchmark policy rates to tame headline inflation.
Why are loans impacted by RBI's decision?
Generally, when RBI hikes the repo rate, it increases the cost of funds for banks. This means that banks will have to pay more for the money they borrow from RBI. Consequently, banks pass on the cost to borrowers by increasing their loan interest rates, making EMIs costlier.
As a result, both new and existing borrowers witness an increase in their loan interest rates.
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