Loan rate hike for affordable houses to be limited to 5 bps

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

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

The country's largest lender, the State Bank of India, on Thursday, raised its marginal cost-based lending rates (MCLR) across most maturities, with immediate effect, according to media reports.

Banks led by the State Bank of India (SBI) have started raising their lending rates, signalling a rise in equated monthly installments (EMIs) on retail loans, including home and vehicle loans, more expensive borrowings for companies, and the end of a soft-interest regime which lasted for nearly 18 months.

Following the increase, rates on deposits developing in one year to under two years have been raised by 15bps to 6.40% from 6.25% prior. For instance, if your home loan is linked to 6-month MCLR, rates will be revised after six months from the last reset and the MCLR prevalent at that time will be applicable.

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Deposits for 7- 45 days will earn an annual interest rate of 5.75 per cent, up from 5.25 per cent earlier. Sources, however, said that other banks will follow suit in the near future.

It can be noted that many banks have been increasing their deposit and lending rates since the last quarter.

The retail rates for deposits of two years and up to 10 years have been climbed by 50bps to 6.50% from 6%.

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State Bank of India on Wednesday raised interest rates on domestic retail term deposits. Banks generally revise MCLR on a monthly basis. Some lenders such as HDFC Bank will review rates next week.

Typically, a deposit rate hike is followed by a lending rate hike. The actual home loan interest rate can be equal to the MCLR or have a "mark-up" or "spread", but can never be lower than the MCLR. This, in the long run, gets reflected in higher loaning rates as the new benchmark for advances - the minor cost of lending rate - is ascertained in light of the cost of assets. The bulk deposits for one year maturity has been increased to 6.75 per cent from 6.50 per cent.

Any hike in deposit rates by market leader SBI could result in a simultaneous increase in lending rates across the banking sector.

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