SBI Hikes Lending Rate For First Time Since April 2016, EMIs To Go Up

SBI raised its lending rate on Thursday. Following this, PNB and ICICI Bank raised their marginal cost of funds based lending rates (MCLR)

SBI Hikes Lending Rate For First Time Since April 2016, EMIs To Go Up

SBI has raised the key 1-year MCLR to 8.15% from 7.95%

Highlights

  • SBI increases marginal cost-based lending rates across most maturities
  • One-year MCLR or benchmark rate raised to 8.15% from 7.95%
  • Rate revision comes a day after SBI hiked fixed deposit interest rates

State Bank of India, the country's largest lender, on Thursday increased marginal cost-based lending rates (MCLR) across most maturities, effective immediately. SBI raised the key one-year MCLR or benchmark rate to 8.15 per cent from 7.95 per cent, according to a notification from the bank. This is the first time SBI has raised the one-year MCLR or benchmark rate since the inception of a new lending rate system in April 2016. The rate revision from SBI comes just a day after the bank raised interest rates on fixed deposits across most maturities.

Another state-run bank PNB also raised its lending rate, effective March 1, 2018. PNB raised its one-year MCLR rate to 8.30 per cent from 8.15 per cent. After this, ICICI Bank also raised its MCLR. The marginal cost of funds based lending rate of ICICI Bank is now 7.95% for the overnight rate against the earlier rate of 7.8%, a hike of 15 basis points.

Signalling a hardening interest rate regime across the banking system, State Bank of India, the leader in both the credit as well as deposit markets, steeply increased the bulk deposits rates for various maturities by up to 0.75 per cent with immediate effect. 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 fixed deposits automatically leads to a pricing revision in loans.

For retail deposits below Rs 1 crore, SBI increased fixed deposit rates by up to 0.50 per cent, while for deposits maturing in one year to less than two years, the pricing has been raised by 0.15 per cent to 6.40 per cent from 6.25 per cent earlier.

(Read: Good News For Depositors! SBI Hikes Fixed Deposits (FD) Interest Rates)

Many banks have been increasing their deposit and lending rates since the last quarter. While lending rates have been jacked up on an average of 5-10 bps by private sector lenders like HDFC Bank, Axis Bank, Kotak Mahindra Bank and Yes Bank since January, almost all the state-run lenders have been increasing their bulk deposit rates in the range of 15 bps to 125 bps.

Newsbeep

Banks are raising interest rates even though the Reserve Bank is leaving its rates unchanged, as risks such as surging bond yields and more provisioning requirements erode their profit.

SBI's new marginal cost of funds-based lending rates with effect from March 1, 2018, as shared by the bank on its website - sbi.co.in:

TenorExisting MCLR (In %)Revised MCLR (In %)
Overnight7.77.8
One month7.87.8
Three months7.857.85
Six months7.98
One year7.958.15
Two years8.058.25
Three years8.18.35

(With agency inputs)