MUMBAI: Home and SME loans are feeling the effect of rise in repo rate by 40 bps to 4.4% earlier this month as Axis Bank and SBI both have raised their internal benchmark, marginal cost of fund-based lending rate or MCLR.
While lenders like ICICI Bank and Bank of Baroda had raised repo-linked loans or external benchmark-linked rates by 40 bps shortly after the MPC raised the repo rate in an off-cycle meet on May 4, banks have begun raising the internal benchmark rate MCLR with bulk deposit rates having risen.
Axis Bank raised the MCLR by 35 basis points (a basis point is one-hundredth of a percentage point ) across all tenors effective May 18. Its three-month MCLR has risen to 7.65%, six month to 7.70%, one year or 7.75%, two-year to 7.85% and three-year to 7.9%. SBI from May 15 raised its MCLR across tenors by 10 bps for the second time in two months. The three months now stands at 6.85%, six-month MCLR at 7.15%, one-year at 7.2%, two-year at 7.4% and three years at 7.5% .
“Home loans are bound to rise at the next reset dates and that’s what we’ve told our clients to take note of,” said Manissha Bangera, financial planner at Quadrant 2 Financial Services. “In a rising rate environment, people are going to feel the pinch or rising EMIs.”
The Monetary Policy Committee’s hand was thought to be forced before the April CPI print being released which showed retail prices climbed to an eight year high of 7.79% , thanks to rising fuel and cooking oil prices as a fallout from the Ukraine war .
This was the fourth straight month of CPI being above MPC’s 6% upper threshold. The range is 4% plus or minus 2%. The MPC next meets on June 6-8 where financial market analysts broadly expect rates to be raised by 35/40-75 bps.
The Committee was expected to raise the repo rate to the pre-pandemic level of 5.15% by the next fiscal quarter, but with WPI rising to a 17 year high of 15.08% in April, odds for a more aggressive rate hike in June have shortened.
This would drive up EMIs linked to MCLR or repo even higher, raising the stress on the common man. The worrying factor of the WPI rise shows that core inflation, ex-food and fuel, remains elevated and signals persisting high rates, going forward.
Axis, SBI latest ones to raise MCLR
Axis Bank raised the MCLR by 35 basis points across all tenors effective May 18, while SBI from May 15 raised its MCLR across tenors by 10 bps for the second time in two months. ICICI Bank and BoB had raised repo-linked loan rates by 40 bps