SBI announces new lending rate structure

Mumbai: State Bank of India (SBI), the country’s largest lender, on Thursday announced its marginal cost of funds-based lending rate (MCLR). The new rate setting structure, which asks banks to price loans based on the marginal cost of deposits rather than average cost, comes into effect from 1 April.

At SBI, the MCLR for loans upto one year maturity will be lower than its current base rate of 9.30% while those on two year and above maturity will be marginally above its base rate.

According to the statement on the bank’s website, the MCLR for overnight loans will be 8.95%, for one-month at 9.05% and for three-month at 9.10%.

The MCLR on 6-month loans will be 9.15% and for one year loans the rate would be 9.2%, the bank said.

Further the bank’s MCLR for two year loans would be at 9.3%. Loans with three year maturity would carry an MCLR of 9.35%, the bank said.

To be sure, the bank will add the credit risk premium of individual borrowers to the MCLR for the final loan rate it would charge.The rates take effect from Friday onwards.

The Reserve Bank Of India introduced the MCLR on 17 December, and the guidelines mandated that banks must price incremental loans using MCLR.

Under MCLR, banks will need to consider their marginal cost of funds, or the cost incurred on incremental deposits across different maturities. To this, banks will add their operating costs, the negative carry over of their cash reserve ratio (CRR) balances with the central bank and a tenure premium.

Banks will need to publish MCLRs for at least five tenures of loans which include overnight, three months, six months and one year. The final loan rate for a borrower will be arrived at by adding the credit risk premium to the MCLR.

The MCLR is expected to improve transmission of policy rate cuts to bank loan rates.

State Bank of India