tiptrot.com June 24, 2018

EMIs set to rise as SBI, others hike lending rates

03 March 2018, 03:24 | Mandy Simon

A man checks his mobile phones in front of State Bank of India branch in Kolkata

A man checks his mobile phones in front of State Bank of India branch in Kolkata

The revised MCLR signals a rise in equated monthly installments (EMIs) on retail loans, including home and auto loans, unless banks reduce the mark-up (margin) in the loans.

The new rates are effective February 28, 2018.

For two-year and three-year tenor, the new MCLR is 8.25 per cent and 8.35 per cent, respectively. Taking a cue from SBI, country's second-largest private sector lender ICICI Bank also raised the one-year MCLR from 8.2 per cent to 8.3 per cent, Indian Express reported. For senior citizens, the revised interest rates are 7 per cent on their deposits, up from earlier 6.50 per cent, said a TOI report.

Like SBI, starting March 1, ICICI Bank and PNB increased their MCLR but by a slightly lower magnitude of 15 basis points.

The other side of the store rate hike is that it will push up the rate of assets for the bank. The recent Union Budget had given retired investors a major incentive for choosing fixed deposits, as it increased the interest income limit for tax deduction at source to Rs 50,000 from Rs 10,000 earlier. Some lenders such as HDFC Bank will review rates next week.

Since lending by banks are based on the marginal cost of funds-based lending rates (MCLR), any upward revision in the cost of funds, including deposit rates would lead to a revision in lending rates as well. The 10-year bond yield now stands at 7.74 per cent, compared to 6.50 per cent as on July 2017, up 124 basis points.

Banks are likely to raise interest rates to increase their profitability.

The lending rate hike also comes in the wake of banks as a whole seeing pick-up in credit demand.

As an existing or a new home loan borrower, if you are expecting a reduction in home loan interest rates, you could be disappointed.

It can be noted that the lender has in the past three months also revised upwards its bulk term deposit pricing in as many months.

Generally, the one-year MCLR is the benchmark against which home loans are priced.

"The trend indicates hardening of interest rate on both sides of the balance sheet-deposits as well as loans".

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