SBI and Others Cut MCLR: What It Means for Borrowers

In a notable development for borrowers in India, major public sector banks, including the State Bank of India (SBI), Bank of Baroda (BoB), and Indian Overseas Bank (IOB), have announced a reduction in their marginal cost of funds-based lending rates (MCLR) by up to 35 basis points. This decision is a direct response to the cumulative 100 basis points cut in the repo rate by the Reserve Bank of India (RBI) between February and June, aimed at encouraging borrowing and stimulating economic growth.

Effective from August 15, SBI has reduced its MCLR by 5 basis points across various tenors. The bank's overnight and one-month MCLRs are now set at 7.90%, down from 7.95%. The one-year MCLR, which is crucial as it impacts most corporate loans, is now 8.75%, lowered from 8.80%. Similarly, the two-year and three-year MCLRs stand at 8.80% and 8.85%, respectively, providing a competitive edge for borrowers seeking longer-term financing.

Bank of Baroda has taken a more significant step by reducing its one-month MCLR by 35 basis points to 7.95%, effective from August 12. The bank's six-month MCLR is now 8.65%, down from 8.75%, and its one-year MCLR has been adjusted to 8.80%, reduced from 8.90%. BoB also revised its overnight and three-month MCLRs by 15 basis points, highlighting its commitment to making loans more affordable.

Meanwhile, Indian Overseas Bank has decreased its MCLR by 10 basis points across all tenors starting from Friday. The new one-year and six-month MCLR rates are now 8.90% and 8.70%, respectively. IOB is also offering an attractive interest rate of 8.30% on its one-month MCLR and 8.45% on three-month MCLR, making it an appealing choice for borrowers.

In addition, Bank of India has revised its one-year MCLR by 10 basis points to 8.90%, effective from August 1. This trend of lowering MCLR rates is a direct reflection of the RBI's efforts to enhance monetary policy transmission. The one-year median MCLR of scheduled commercial banks has moderated to 8.75% in July from 9.05% in February, signaling a positive shift in lending rates.

Introduced in April 2016, MCLR establishes a minimum interest rate below which banks cannot lend, ensuring that borrowers benefit from lower costs. The RBI has also introduced an external benchmark-based lending rate (EBLR), linked to the repo rate, allowing for immediate adjustments in loan rates when the repo rate changes. With these updates, borrowers can expect a more favorable lending environment as banks respond to changing economic conditions.