03 March, 2018
In MCLR-linked home loans, the rate is reset after 6/12 months as per the agreement between the borrower and the bank.
Mumbai: Signalling a hardening interest rate regime across the banking system, State Bank of India, the leader in both the credit as well as deposit markets, steeply increased the bulk deposits rates for various maturities by up to 0.75 percent with immediate effect.
Under the present loan pricing mechanism, which is based on the MCLR, any upward revision in the cost of funds, including deposits pricing, will lead all retail loans, including home loans, auto loans, education loans, certain personal loans and loans against properties to cost more.
PNB, which is the second largest public sector lender, also raised the overnight, one-month, three-month and six- month rates by 15 bps to 7.80 per cent, 7.95 per cent, 8.10 per cent and 8.25 per cent, respectively. Most of the other banks have increased their deposit rate in the last one month.
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The retail rates for deposits of two years and up to 10 years have been climbed by 50bps to 6.50% from 6%.
The SBI has also hiked MCLR across various tenors. The banks have no option but to raise lending rates to insulate their profitability against the provisioning of bad loans. This indicates that the interest in the economy has moved up even as the Reserve Bank of India (RBI) in February kept its policy rates unchanged for the third time. In the past three months, SBI had twice raised rates on bulk deposits.
Another State-run bank, PNB, also raised its lending rate, effective 1 March 2018.
The SBI move comes a day after it had raised its retail and bulk term deposit rates for various maturities by up to 75 bps. So when we were comparing our deposit rate with other banks' rates, we noted the difference has become quite wide. The final lending rate charged to a customer includes spread to the MCLR. 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.