State Bank of India ups benchmark rates after 3 years

MUMBAI: State Bank of India has increased its Marginal Cost of Lending Rate by 10 basis points. The MCLR was the benchmark for home loans until it was replaced with the external benchmark (repo) linked rate in October 2019. SBI has also announced that it has raised $500mn through foreign borrowing.

The revision will make home loans costlier for all borrowers who availed of home loans before October 2019. Wholesale borrowers are also likely to see an increase in the cost of funds. Those who borrowed after October 2019 will see their rates rise only after RBI hikes its repo rate which is now widely expected to happen in June 2022. This is the first time since March 2019, that the bank has revised its one-year MCLR.

In March 2019, the one-year MCLR had hit a peak of 8.55%. Since then it has steadily declined. It had been constant since June 2020 at 7%. With the country’s largest lender raising rates other banks are likely to follow suit soon. In terms of the revised rates the MCLR for overnight, one month and three-month funds are revised from 6.65% to 6.75%.

The six-month MCLR is revised from 6.95% to 7.05%. The two year and three-year benchmarks are also revised by 10 basis points to 7.3% and 7.4%. The MCLR is a reflection of the incremental cost of funds of banks. The cost of funds for banks can go up when either deposit rates, money market rates or interest rates on domestic and international bonds issued by the bank rise.

While domestic deposit rates have not increased significantly the cost of international borrowings has shot up because of the US Federal Reserve hiking interest rates. On Monday SBI announced that it has raised $500mn offshore borrowing from IFSC Gift City through loan syndication. This is the first offshore borrowing linked to US Secured Overnight Financing Rate, which replaces the erstwhile London Interbank Offered Rate.

“The successful launch of the syndicated loan at such a fine pricing demonstrates the kind of reputation SBI has created for itself in offshore financial markets allowing it to efficiently raise funds even during ongoing turbulence in the markets caused by geopolitical tensions and rate hike expectations by US Federal Reserve and other central banks across the globe,” said Ashwini Kumar Tewari, MD, SBI.