The ICICI Bank has hiked the MCLR by 20 basis points (100 basis points/bps = 1%) across all tenures. Other two public sector banks – Punjab National Bank and Bank of India has hiked MCLR by 20 bps and up to 15 bps respectively across MCLR tenures.
ICICI Bank hikes MCLR by 20 bps
ICICI Bank has hiked the MCLR by 20 bps. The hike in MCLR is across all the tenure. The one-year MCLR now stands at 8.30% from 8.10% earlier. Similarly, six months MCLR is at 8.25% from 8.05% in the previous month.
Source: ICICI Bank Website
PNB hikes MCLR by 30 bps
Public-sector bank PNB has also hiked the MCLR by 30 bps across all tenures. With the hike, the one-year MCLR now stands at 8.05% from 7.75% earlier and six-month MCLR stands at 7.75% from 7.45% previously.
Source: PNB website
Bank of India hikes MCLR by up to 15 bps
Another public-sector bank, Bank of India has hiked the MCLR rate. The PSU bank has hiked the rate by 15 bps on one-year MCLR and by 10 bps across the rest of the tenures.
Post the hike, the Bank of India’s one-year MCLR stands at 7.95% from 7.80% earlier and six-months MCLR stands at 7.65% from 7.55% in the previous month.
Source: Bank of India website
How does MCLR linked home loans work
MCLR is the minimum rate at which banks can offer loans to customers. The Reserve Bank of India (RBI) introduced MCLR in 2016 to determine the interest rates of various types of loans. It is an internal reference rate for banks to offer loans at a competitive and transparent rate. Banks were disbursing home loans linked to MCLR till September 30, 2019. Effective from October 1, 2019, the RBI asked the banks to link the home loan interest rate to external benchmark lending rate (repo rate, T-bill etc). Thus, if you have taken home loan before September 30, 2019 and have not switched to external benchmark lending rate, then it is likely your home loan is still linked to MCLR regime.
Usually, MCLR linked home loans are linked to tenure of 6 months or one-year. Any change in the MCLR will have an impact on the interest rate charged on your home loan. If the MCLR goes up, then your home loan EMI Will also increase. However, the burden on hike in MCLR will be felt when the reset date of the home loan arrives.
On the reset date, banks usually calculate the future home loan EMIs on the basis of prevailing MCLR rate. Do note that the future EMIs (till the next reset date) are calculated based on the effective interest rate (MCLR rate plus margin effective), outstanding loan amount and tenure of loan left on the reset date.
It is important to understand that banks add a mark-up or spread over and above the MCLR to arrive at the interest rate charged on your home loan. The mark-up/spread is added based on your CIBIL score, profile of the borrower (salaried or self-employed) etc.