Public Sector Lenders Raise MCLR | 17 Jul 2024

Source: IE

Public sector lenders like State Bank of India and Bank of Baroda have raised their Marginal Cost of funds based Lending Rates (MCLR). This will lead to higher Equated Monthly Instalments (EMIs) for borrowers.

The Marginal Cost of Fund based Lending Rate refers to the minimum interest rate a bank must charge for lending. The bank cannot grant any loan below that rate, except in certain cases permitted by the Reserve Bank of India (RBI).
- MCLR is an "internal benchmark" which varies from bank to bank. It is calculated based on the marginal cost of funds.
- Main components of MCLR:
  - Marginal cost of funds
  - Negative carry on account of CRR
  - Operating costs
  - Tenor premium
If the cost of funds goes up, the MCLR increases, and the loans linked to any MCLR tenor get more expensive. Similarly, if the MCLR comes down, loans get cheaper.
In 2019, the Reserve Bank of India (RBI) introduced the External Benchmark Based Lending Rate (EBLR), to replace the MCLR regime.
Consequently, all retail loans and floating-rate loans to Micro, Small, and Medium Enterprises (MSMEs) are now linked to the EBLR.