State Bank of India has hiked the MCLR twice in the recent past.
Country’s largest lender State Bank of India (SBI) has hiked funds-based lending rate (MCLR) by 5 basis points for several periods effective from Friday. The move comes even as interest rates have started to fall around the world and the RBI is expected to start cutting the key repo rate in 2025.
MCLR is the cost of funds for lenders. Banks add a spread to MCLR and price their loan rates, thus an increase in MCLR increases interest rates on loans. A basis point (bp) is a 100th of a percentage point.
According to a notice on SBI’s website, the one-year MCLR, which is linked to long-term loans such as home finance with principal tenure, has been raised to 9 per cent from 0.05 per cent from Friday.
The lender has hiked the MCLR twice in the recent past, amid fears that the higher cost of deposits due to the war over liabilities among banks will eventually result in higher end rates.
The bank’s chairman CS Setty said that 42 per cent of the bank’s loan book is linked to the MCLR, while the rest is based on external benchmarks.
He also clarified that deposit rates have peaked in the system and banks will not use rates as a pull factor for customers.
SBI has also increased the MCLR in three and six month periods and maintained it overnight, one month, two years and three years.
On Thursday, Commerce and Industry Minister Piyush Goyal said that the Reserve Bank of India (RBI) should definitely cut interest rates. He also said that in the last 10 years of the Modi government, average inflation in India has been the lowest since independence.
Addressing the latest October 2024 retail inflation figures, Goyal said, “When the RBI Monetary Policy Committee last came out with their recommendations, they also predicted inflation to pick up this month. It’s not rocket science.”
India’s CPI inflation hit a 14-month high of 6.1 percent in October. Inflation has crossed the Reserve Bank of India’s 6 percent target for the first time since August. Food inflation was 10.87 percent.
“It (October 2024 inflation) is not surprising,” he said, adding that the inflation figure is going to come down again in December or January. “We are all smart enough to understand what is happening; what is the basic impact, what are the factors, what was the demand for the festival,” the minister said.
Responding to this, RBI Governor Shaktikanta Das said that he would like to reserve his comments on the rate action for December 2024 monetary policy.
The next MPC meeting is scheduled to be held on December 4-6.