Leading Banks’ MCLR Rate for a Home loan and its impact
Everyone who avails a loan from the banks needs to pay the MCLR cost (Marginal Cost of Funds based lending rates). This is the minimum interest rate, which is charged by the leading banks to the individuals who avails any loan. The Reserve Bank of India implemented the MCLR benchmark on the 1st April 2016 to determine the loan interest.
Most of the leading banks like HDFC Home Loan, SBI Home Loan, HDFC home loan, ICICI Home Loan, PNB Home Loans, RBL Home Loan, and many such leading banks offer interest rates much lower than the marginal cost of the base lending rates. However, there are certain exceptions which are allowed by the RBI.
The MCLR is very closely linked to the repo rate and the fund costs of the banks. A change in the repo rate brings upon an impact on the floating rate of interest on your Home Loan. If the bank brings its marginal cost of funds down, then the floating rate of interest which is associated with the Home Loan also falls down. This change affects the equated installments which you pay monthly for the Home Loan, and the tenure of the loan too gets impacted.
MCLR and Base Rate in Home Loans
There is a considerable difference between MCLR and the base rate charged on Home Loans. The MCLR refers to the internal benchmark or the reference rate, which has been set by the RBI for the financial institutions. The Marginal cost of Funds based lending rates have replaced the traditional system of charging a base rate on the Home Loans. Thus, all the sanctioning of loans by leading private sector banks and public sector banks are based on MCLR.
MCLR depends on various factors like the marginal cost of funds, the tenor premium, and the operating cost whereas the base rate depends on the factors like banks costs, bank deposit, profits, etc.
Need for MCLR on Home Loans:
• It brings about transparency in the procedure followed by various banks for determining the interest rates
• It ensures the availability of the bank loan at the rates, which is fair to both the borrowers and the lenders.
• It enables banks and lenders to be competitive and improve themselves in the long-term.
Calculation of MCLR
To calculate the Marginal Cost of the funds which is based on the lending rate one must consider all the borrowing sources for the bank. The bank borrows from various sources such as Fixed Deposits, Current Accounts, Savings Accounts, etc. the rate of interest from these borrowing sources can be used to calculate the marginal cost of borrowing.
Usually, the formula which is prescribed by the Reserve Bank of India for calculating the MCLR is:
Marginal borrowing cost x 92% + return on the net worth x 8% = Marginal cost of funds
The banks are required to maintain a cash reserve ratio of 4 percent. On the deposit, there is no interest earned by the bank. Under the MCLR scheme, the banks can avail an allowance called negative carry. The operating cost should also be considered. The bank has to bear many expenses like fun raising, branch opening costs, the salary of its employees, etc. These are never charged on the customers. Finally, there is a discount on the tenor premium. The tenor is higher if the period of reset is high.
Hence, it can be concluded that the MCLR depends on:
• The marginal cost of funds
• The operating costs of the bank
• The tenor premium
• The negative carry on the cash reserve ratio
Impact of the MCLR on your Home Loans:
The decision to convert to MCLR from a base rate system depends mainly on the benefits of the same. There are various banks which charge differently for making this switch. However, you must choose the lender carefully.
The MCLR is closely associated with the floating rate. In case the Home Loans which you opted for is attached with fixed rates of interest then the MCLR shouldn’t affect the home loan. The changes in the repo rate will decide whether you lose or gain with the MCLR system.
MCLR Rates Offered By Top Banks:
Bank Wise MCLR Rates: Across Various Tenors
- State Bank of India
3 years — 8.75%
2 years — 8.65%
1 year — 8.55%
6 months — 8.40%
3 months — 8.25%
1 month — 8.20%
Overnight — 8.20%
2. HDFC Bank
3 years — 9.00%
2 years — 8.85%
1 year- 8.75%
6 months — 8.55%
3 months — 8.45%
1 month — 8.40%
Overnight — 8.35%
3. ICICI Bank
3 years — NA
2 years — NA
1 year- 8.80%
6 months — 8.75%
3 months — 8.65%
1 month — 8.55%
Overnight — 8.55%
4. Axis Bank
3 years — 9.05%
2 years — NA
1 year- 9.000%
6 months — 8.90%
3 months — 8.80%
1 month — 8.65%
Overnight — 8.50%
5. Punjab National Bank
3 years — 8.65%
2 years — NA
1 year- 8.45%
6 months — 8.35%
3 months — 8.15%
1 month — 8.10%
Overnight — 8.05%
