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Tuesday, February 27, 2024

Explained: SBI Increases The MCLR On Home Loans By 10 BPS

With effect from January 15, 2023, the State Bank of India (SBI) has increased the marginal cost of funds-based lending rate (MCLR) for home loans with a one-year term by 10 basis points. The MCLR is the lowest interest rate that the bank will allow for lending.

According to the SBI notification, the MCLR for a one-year tenure will increase from 8.30% to 8.4% with effect from January 15 while remaining the same for other tenures.

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What is MCLR?

SBI Bank
BCCL/Representational Image

The financial institution’s internal benchmark or reference rate is the MCLR. Calculating the minimum interest rate for a home loan is done using a margin cost of funds-based lending rate. The Reserve Bank of India introduced the MCLR method to the Indian financial system in 2016. The base rate system, which was introduced in 2010, has been replaced by the MCLR system. Therefore, credit limit renewal and loan approval follow MCLR guidelines.

It serves as a benchmark rate for banks internally to determine the amount of interest they can charge borrowers. They account for the extra or incremental cost of finding a potential buyer an extra rupee in order to do this.

The interest rates are now set in accordance with the relative risk factors of specific customers following the implementation of MCLR. Previously, banks took a while to adjust the lending rates for the borrowers when the RBI lowered the repo rate.

Banks are required to change their interest rates under the MCLR regime as soon as the repo rate changes. The implementation aims to increase the transparency of the method used by banks to determine the interest rate on advances.

Additionally, it guarantees the possibility of bank loans at rates that are fair to both banks and consumers.

What are the existing and revised tenor-wise MCLR-based interest rates?


  Existing MCLR (In %) 

    Revised MCLR (In %)




 One Month



 Three Month



 Six Month



 One Year



 Two Years 8.50 8.50
 Three Years 8.60 8.60

What were the previous rates?

The adjustment follows the prior hike from November of last year. The majority of consumer loans now cost borrowers more money thanks to SBI’s 15 basis point increase in the MCLR rate across all tenors. On November 15, 2022, the rates went into effect. Home, auto, and personal loans are fixed using the benchmark one-year MCLR, which was increased by 10 basis points (bps) to 8.05 percent from 7.95 percent earlier. 

Home Loan
Unsplash/Representational Image

According to the SBI notification posted on its website, the two-year and three-year MCLRs were also increased by 10 basis points each to 8.25 percent and 8.35 percent, respectively. The one-month and three-month MCLRs were raised to 7.75 percent, among other things, by 15 basis points each. The overnight rate increased by 10 basis points to 7.60%, while the six-month MCLR increased by 15 basis points to 8.05%.

What about the loans linked to MCLR?

Home Loan
Unsplash/Representational Image

All floating-rate loans, including home loans, loans secured by property, and others, are frequently connected to the MCLR. A reset clause and a spread are included in the loan agreement for loans that are linked to the MCLR; some banks have an annual reset clause, while others might have a half-yearly reset clause.

On April 1, 2016, the Reserve Bank of India (RBI) implemented the MCLR methodology to determine interest rates for advances. The July 2010 base rate system was replaced by this one. Every month, banks are required to review and publish their MCLRs for various maturities. For instance, most mortgage loans are benchmarked against the one-year MCLR.

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