State Bank of India (SBI), the largest public sector bank in India, surprised its customers by announcing a 0.05 percent increase in its Marginal Cost of Funds Based Lending Rate (MCLR) on November 14, 2024.
This increase comes despite a global trend of falling interest rates, with the Reserve Bank of India (RBI) expected to cut its repo rate in 2025.
What is MCLR and How It Affects Loans
MCLR is the cost of funds for banks, and banks add a spread to the MCLR to determine their loan interest rates. So, when the MCLR rises, loan interest rates are likely to increase as well.
The one-year MCLR rate has gone up to 9 percent, which directly affects loans like personal loans, vehicle loans, and home loans. This is the second time in recent months that SBI has increased its MCLR.
SBI’s chairman, CS Shetty, mentioned that 42 percent of the bank’s loans are linked to the MCLR, while the rest are based on external benchmarks. He also pointed out that deposit rates are at their highest levels, and the bank will not use interest rates to attract customers.
Other Changes in MCLR and Inflation Concerns
SBI has also increased the MCLR for three- and six-month periods. However, the MCLR for one-day, one-month, two-year, and three-year periods remains unchanged.
Meanwhile, Commerce and Industry Minister Piyush Goyal urged the RBI to cut interest rates, citing the lowest average inflation in India in the last 10 years.
He also mentioned that inflation figures are expected to fall again by December or January, despite October’s inflation reaching a 14-month high of 6.1 percent, exceeding the RBI’s target of 6 percent. Food inflation was reported at 10.87 percent.
RBI and Inflation Concerns
Commerce and Industry Minister Piyush Goyal recently urged the RBI to cut interest rates, citing the low inflation in India during the past decade.
Regarding the latest retail inflation data for October 2024, Goyal noted that inflation rose to a 14-month high of 6.1%, surpassing the RBI’s target limit of 6%.
However, he predicted that inflation would likely fall again in December or January. Food inflation was particularly high, reaching 10.87%.
