In a development that may concern loan borrowers, both ICICI Bank and Bank of India have decided to raise their Marginal Cost of Funds-Based Lending Rates (MCLR) effective from November 1, 2023. The move is prompted by the recent remarks of RBI Governor Shaktikant Das regarding the incomplete transmission of the current monetary policy cycle and the possibility of a rate hike in the future. This article delves into the impact of this rate hike on borrowers.
ICICI Bank’s MCLR Rate:
As a result of the MCLR hike, ICICI Bank has raised its lending rates. The overnight and one-month MCLR now stand at 8.50 percent and 8.55 percent, respectively. Meanwhile, the rates for three months and six months are 8.90 percent, and the one-year MCLR has been set at 9 percent.
Bank of India’s MCLR Rate:
Similarly, Bank of India has made adjustments to its MCLR rates. The overnight MCLR and one-month MCLR are now 7.95 percent and 8.20 percent, respectively. The three-month MCLR and six-month MCLR are set at 8.35 percent and 8.55 percent, while the one-year MCLR has been revised to 8.75 percent. The three-year MCLR now stands at 8.95 percent.
Understanding MCLR Rate:
The Marginal Cost of Funds-Based Lending Rate (MCLR) is a benchmark rate introduced by the Reserve Bank of India (RBI) on April 1, 2016. It serves as the minimum lending rate below which banks are not permitted to lend. The consistent repo rate hikes by the RBI since May 2022 have contributed to a gradual rise in interest rates on both loans and deposits offered by banks.
Impact on Borrowers:
The increase in MCLR rates by ICICI Bank and Bank of India signifies higher borrowing costs for customers. Borrowers with existing loans linked to MCLR rates can expect an increase in their Equated Monthly Installments (EMIs), leading to a higher financial burden. Additionally, new borrowers may need to consider the elevated interest rates when availing loans from these banks.
The decision by ICICI Bank and Bank of India to hike their MCLR rates underscores the potential challenges facing borrowers as interest rates continue to rise. Borrowers must be prepared for increased EMIs and should assess their financial commitments accordingly.
