State Bank of India (SBI) hiked its benchmark lending rate by 50 basis points (or 0.5%), resulting in higher EMIs for borrowers.

The loan rate hike came days after the Reserve Bank of India raised its benchmark lending rate by 50 basis points to tame inflation.

The External Benchmark Lending Rate (EBLR) and Repo Linked Lending Rate (RLLR) were increased by 50 basis points, while 20 basis points across all maturities increased the Marginal Cost of Funds Lending Rate (MCLR).

The revised rates are effective from August 15, according to the information posted on the SBI website. SBI’s EBLR rose to 8.05%, and RLLR rose 50 basis points to 7.65%.

Banks add a credit risk premium (CRP) to EBLR and RLLR when making any loan, including home and auto loans.
After the revision, the one-year MCLR was increased to 7.7% from 7.5% previously, compared to 7.9% for the two years and 8% for the three years. Most loans are tied to a one-year MCLR rate.

As lending rates rise, EMIs will rise for those borrowers who take out loans on MCLR, EBLR or RLLR.

From October 1, 2019, all banks, including SBI, have switched to rates linked to external benchmarks such as RBI’s repo rate or Treasury bill yields. As a result, the bank’s monetary policy transmission has gained traction.