EMIs to rise as ICICI, BOI hike lending rates
ICICI Bank, a private sector lender, and Bank of India (BOI), a public lender, have raised their marginal cost-based lending rates (MCLR). The new rates, which came into effect on November 1, 2023, will lead to increased EMIs linked to MCLR. This is the second instance in three months when both banks hiked their MCLR rates.
Revised MCLR rates for ICICI Bank
Starting November 1, 2023, ICICI Bank's updated MCLR rates are as follows: overnight and one-month MCLR at 8.50%, up from 8.40% and three-month MCLR at 8.55%, up from 8.45%. The six-month MCLR is revised to 8.90% from 8.80% and the one-year MCLR to 9% from 8.90%.
Revised MCLR rates of Bank of India
On the other hand, Bank of India's overnight MCLR remained unchanged at 7.95%, one-month MCLR at 8.20%, up from 8.15%; three-month MCLR at 8.35%, up from 8.30%; six-month MCLR at 8.55%, up from 8.50%. The one-year MCLR was revised to 8.75% from 8.70% and the three-year MCLR to 8.95% from 8.90%.
What is MCLR?
The MCLR is a tool that helps banks determine the minimum interest rate for the different types of loans they provide. Essentially, it sets the lowest rate at which banks can offer loans to their customers. For consumer loans like auto, personal, and home loans, the one-year MCLR serves as the reference rate.
RBI introduced MCLR system on April 1
The Reserve Bank of India (RBI) introduced the MCLR system on April 1, 2016, as an internal benchmark for banks to establish the minimum lending rate they cannot go below. This enables the RBI to communicate interest rate changes to borrowers relatively quickly through monthly MCLR updates. On October 6, RBI Governor Shaktikanta Das announced that the Monetary Policy Committee (MPC) decided to maintain the repo rate for the fourth consecutive time, keeping it unchanged at 6.5%.
How is repo connected to MCLR?
The repo rate is the interest rate at which the central bank lends money to nationalized banks, while MCLR is the rate at which banks lend money to the general public. When the repo rate goes up, it usually results in a higher MCLR and, as a result, higher lending rates. However, banks have the discretion to set the MCLR rate.
