India’s largest public sector lender, State Bank of India (SBI), has announced an increase in its benchmark lending rates by 10 basis points (bps) across various tenures. Effective from June 15, 2024, this adjustment sees the 1-year Marginal Cost of Funds Based Lending Rate (MCLR) rise to 8.75%, with the highest benchmark rate reaching 8.95%.
New MCLR Rates at SBI
According to SBI’s website, the updated MCLR rates from June 15, 2024, are as follows:
- 1-year tenure: 8.75%
- 2-year tenure: 8.85%
- 3-year tenure: 8.95%
For shorter tenures, the revised rates are:
- Overnight: 8.10%
- Three-month tenure: 8.30%
- Six-month tenure: 8.30%
These new rates represent a 10 bps increase from previous MCLR levels, which stood at 8.65% for 1-year, 8.75% for 2-year, 8.85% for 3-year, 8.20% for 3-month and 6-month tenures, and 8.00% for overnight.
Context of the Rate Hike
This rate hike comes despite the Reserve Bank of India (RBI) maintaining the repo rate at 6.5% for the eighth consecutive policy review. The RBI’s Monetary Policy Committee (MPC) has kept its stance on the ‘withdrawal of accommodation’ unchanged, aligning with market expectations.
Impact on EMIs
It’s important to note that many banks in India have transitioned from MCLR to an external lending rate linked to the RBI’s policy repo rate. Consequently, not all borrowers will be affected by the recent MCLR revision. For instance, HDFC Bank has not adjusted its rates, indicating that the impact of SBI’s rate hike will be selective.
MCLR was introduced on April 1, 2016, as the internal benchmark for bank loans. However, since October 1, 2019, the RBI has mandated that all scheduled commercial banks link their lending rates to external benchmarks, such as the policy repo rate, to ensure more effective transmission of monetary policy. Existing loans linked to MCLR, Base Rate, or BPLR will continue until their repayment or renewal.
Calculating SBI Home Loan EMIs
SBI offers different interest rates on regular home loans based on borrowers’ CIBIL scores:
- CIBIL score 750 and above: 9.55%
- CIBIL score 700-749: 9.75%
- CIBIL score 650-699: 9.85%
- CIBIL score 550-649: 10.15%
- No CIBIL Score/NTC/-1: 9.75%
Using SBI’s home loan EMI calculator, let’s consider a hypothetical scenario: A borrower takes a loan of ₹30 lakh for a tenure of 10 years at an interest rate of 9.55%. The monthly EMI would be approximately ₹38,901, with the total interest payable over the loan term amounting to around ₹16.68 lakh. Thus, the total payment over the tenure would be approximately ₹46.68 lakh.
Understanding Home Loan EMIs
SBI explains that an EMI, or Equated Monthly Instalment, is a fixed payment made by the borrower to the bank on a specific date each month. EMIs comprise both the interest and principal components of the loan, structured so that the loan amount is fully repaid with interest over a designated period.
