The largest public sector bank in India, the State Bank of India, has decided to raise interest rates offered on retail deposits. Other banks are expected to raise interest rates, too. SBI has increased interest rates on retail deposits by 50 basis points. (1 Basis Point = 0.01%). So, if you have an FD in SBI, it's time to rejoice. You will enjoy a higher interest rate on FD.
The FD rates for deposits between 1-2 years has been raised by 15 Basis Points from 6.25% to 6.4%. The FD rates for deposits between 2-10 years has been increased by 50 basis points from 6% to 6.5%.
While higher interest rates on FDs is certainly good news for depositors, there's bad news if you have availed a home loan from SBI. SBI would raise the MCLR (Marginal Cost Lending Rates), which means higher interest rates on your home loan.
So what is MCLR? Let's find out. Want to know more on FD, Home Loans and Car Loans? We at IndianMoney.com will make it easy for you. Just give us a missed call on 022 6181 6111 to explore our unique Free Advisory Service. IndianMoney.com is not a seller of any financial products. We only provide FREE financial advice / education to ensure that you are not mis-guided while buying any kind of financial products.
What is MCLR? Marginal Cost Lending Rate popularly called MCLR, is calculated based on marginal cost of funds for banks, tenor premium, operating expenses and the cost of maintaining the cash reserve ratio.
1. Marginal cost of funds: This is the additional cost banks incur, to fund the purchase of an asset.
2. Tenor Premium: Higher the time period, higher the risk the bank bears on the loan. So banks charge a tenor premium to cover this risk.
3. Operating Expenses: There are some expenses for the bank, when you avail a loan.
4. Cost of maintaining the cash reserve ratio: Banks are required to maintain a certain percentage of their total deposits with RBI in current accounts, called cash reserve ratio. Banks incur costs to maintain cash reserve ratio.
SEE ALSO: Ready For A Home Loan
1. SBI Raises Interest Rates: Home Loans To Get Costly?
SBI has raised the interest rates offered on FDs. While this is good news for depositors, there's bad news if you have availed a home loan from SBI, ICICI Bank or PNB. SBI, ICICI Bank, and PNB have all increased the MCLR by 10-20 basis points.
SBI the largest Public Sector Lender, has increased the 1-year MCLR from 7.95% to 8.15% and ICICI Bank one of the largest Private Sector Banks, has increased the 1-year MCLR from 8.2% to 8.3%.
The cost of deposits for SBI has gone up, because interest rates offered on retail deposits have been hiked. This means higher MCLR and higher home loan rates. So, if you have availed a home loan from SBI, ICICI Bank or PNB, your home loan interest rate will go up. Want to Calculate home loan interest rates? Try our Home Loan EMI Calculator.
SEE ALSO: Tips to apply for a home loan after 45
SBI has increased deposit rates and MCLR has increased. This means higher interest rates on floating rate home loans. Let's say you have availed a home loan of Rs 45 Lakhs for 15 years from a bank. The home loan rate has been hiked from 8.3% to 8.5%. Your EMI changes from Rs 43,787 to Rs 44,313, which is an increase of Rs 526.
So expect your home loan rates in SBI, ICICI Bank and PNB to go up. Be Wise, Get Rich.
Mr. C S Sudheer is the founder and CEO of IndianMoney.com – India’s largest Financial Education Company. He started his career with ICICI Prudential Life Insurance and later on worked with Howden India. After his brief stint in Howden India, he moved on and incorporated Suvision Holdings Pvt Ltd which is the sole promoter of IndianMoney.com. He aims to build a nation that is financially literate with investment savvy citizens.
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