MUMBAI: Corporate, home and auto loan rates are likely to rise, as several banks raised their marginal cost of fund-based lending rates (MCLR) in the past few days. MCLR, in effect from April 1, 2016, is the minimum rate below which banks are not permitted to lend. SBI, Bank of Baroda, Kotak Mahindra Bank and Axis Bank are among those which raised rates in the past few days, beginning April 12 .
SBI raised its MCLR by 10 basis points or 0.1 percentage point across all tenures, while the other three have raised it by 5 bps, or 0.05 percent across the board. Accordingly, effective April 15, SBI’s MCLR of one-year stands at 7.1%, two-year at 7.3% and three-year at 7.4%. Axis Bank’s one-year MCLR effective April 18 is at 7.4%, two and three years at 7.5% and 7.55%, respectively.
“One of the main reasons for MCLR increase is a rise in the bulk deposit rate by banks,” said Madan Sabnavis, chief economist at Bank of Baroda. “Since new retail and home rates are now marked to external benchmarks like the repo or the 10-year G-sec, corporates largely will see their borrowing rates rise .”Earlier, RBI had directed banks to link all new floating rate retail and MSME loans to external benchmarks effective October 1, 2019.
Sabnavis added that triple A-rated corporates could have the option of raising funds from the corporate bond market at a more attractive rate than MCLR. However, lower-rated corporates would see their cost of funds rise now.
The proportion of loans linked to MCLR have the highest share of 53% as of December 2021, even as proportion of floating rate loans linked to external benchmarks like repo increased to 39% in December from nearly 29% at the end of FY 21. The rise in EMIs comes amid retail price inflation rising to 6.95% in March.