The country’s largest lender, State Bank of India (SBI) on Thursday increased interest rate on marginal cost of funds-based lending rate (MCLR) across most maturities. SBI raised the key one-year MCLR or benchmark rate to 8.15 per cent from 7.95 per cent, according to a notification from the bank.
One basis point is one-hundredth of a percentage point.
This is the first time a bank has increased the benchmark lending rate after the MCLR regime came into effect in April 2016, signalling a turn in the interest rate cycle.
All new loans taken after 1 April 2016 are linked to MCLR. One-year MCLR is the key lending rate at which SBI pegs its retail loans, including home loans, auto loans, education loans, certain personal loans and loans against properties.
On Wednesday, SBI had increased rates on term deposits by 10-75 bps which bankers and analysts attributed to tight banking system liquidity conditions. In the past three months, SBI has raised rates on bulk deposits twice. However, this is the first time after demonetisation that the bank has raised term deposit rates on amounts below Rs 1 crore.
Punjab National Bank also recently raised its one-year MCLR rate to 8.30 per cent from 8.15 per cent, effective March 1, 2018.
Banks are raising interest rates even though the Reserve Bank is leaving its rates unchanged, as risks such as surging bond yields and more provisioning requirements erode their profit.
