What is MCLR — Top 10 Banks MCLR rates
A loan has become more of a necessity in today’s day and age. For most people, buying a house with complete funds is a far fetched dream. Hence, they largely depend on loans to fulfill their financial life commitments. Most of us are aware of concepts like EMI, borrowing rate, etc. However, there are some terms which are not understood by everybody. One such term is- MCLR.
MCLR rate is an integral term to consider when it comes to applying for a Home Loan. To that effect, we would be covering this concept in detail and also covering the MCLR rates for top leading banks of India:
To understand MCLR rates properly, you need to first dig a little deeper into the banking system of India. MCLR stands for Marginal Cost of Funds Based Lending Rate. The Reserve Bank of India implemented this system on the 1st of April 2016 as a replacement to the previous base rate system that persisted. It is more of a reference rate used by the banks internally. Banks decide the rate of interest they need to levy on the loans, and accordingly, this rate gets determined. To evaluate this, they consider the incremental value of providing each additional rupee to the potential borrower.
What was the outcome of the implementation of MCLR?
After the implementation of MCLR rates, the banking system has seen a minor change in terms of interest rate evaluation. Now, interest rates are determined based on the relative riskiness that each individual customer carries. Earlier when Reserve Bank of India had reduced the repo rate, the banks had taken quite a while to adopt the lending prices and offer it to the borrowers. However, ever since MCLR rates had been adopted, banks need to immediately change the interest rate as quickly as the repo rate set by RBI changes.
How is MCLR calculated?
The calculation of MCLR rates is associated with the duration through which the borrower needs to repay the amount borrowed. This benchmark, which is linked to the tenor, is calculated on an internal basis. The actual lending rates are determined by adding the different elements to this primary consideration. After carefully reviewing, the MCLR rates are published. This procedure is adopted for different maturities and different loans. Some banks undertake this process monthly, while some do it at a stipulated duration.
What are the four main elements of MCLR calculation?
The four primary elements that go behind evaluating MCLR are made up of the following:
1) Tenor Premium
Tenor period is one element where uniformity for all types of loans is considered. This means that it is a variable factor and it is not specific to any borrower or the loan class.
2) The Marginal cost of funds
The Marginal cost of borrowing is an average rate which uses deposits similar to maturities raised during a stipulated period. However, this is done before the review date. This reflects on the bank’s books based on the outstanding balance.
3) Operational costs
The operational expenses also go in calculating the MCLR rates. These include raising of funds, cost barring, as well as the service charges. Hence, it is connected by providing the loan product ultimately.
4) Negative carry based on Cash Reserve Ratio
Negative carry on takes place when the expected return on the Cash Reserve Ratio balance is nearly zero. When the actual yield is lesser as compared to the fund costs, the negative carry arises, impacting the liquidity ratio balance that every commercial bank needs to maintain.
What is the difference between MCLR rates and the base rate?
Since most borrowers are aware of the base rate, it is essential to understand the primary difference between MCLR rates as well as base rates. MCLR rates are a better version of the plain base rate that used to be evaluated. It is an approach that consists of risk to decide the lending rate offered to the borrower. As mentioned above, it considers a lot more factors such as repo rate that provides a better calculation than a base rate.
What are the MCLR rates of top ten banks?
MCLR rates of the top ten banks are listed below:
1. If you want to get an SBI Home Loan, the new MCLR rates are as follows across the tenors:
- 1 year tenor: 8.4%
- 2 years tenor- 8.65%
- 3 years tenor- 8.75%
- Overnight:8.20%
For loans borrowed for lesser than a year, the rates are:
- 1 month: 8.20%
- 3 months: 8.25%
- 6 months: 8.40%
2. For people who wish to get a loan from HDFC, latest MCLR rates to consider:
- 1 year tenor: 8.75%
- 2 years tenor: 8.85%
- 3 years- 9.00%
For loans borrowed for lesser than a year, the rates are:
- 1 month: 8.40%
- 3 months: 8.45%
- 6 months: 8.55%
3. For borrowers considering a Bank of Baroda Home Loan, the revised rates are:
- 1 year tenor: 8.70%
For loans borrowed for lesser than a year, the rates are:
- 1 month: 8.35%
- 3 months: 8.45%
- 6 months: 8.65%
4. For potential AXIS Bank borrowers, the MCLR rates are as follows:
- 1-year tenor: 8.90%
- 2 years tenor: 9.00%
- 3 years- 9.05%
For loans borrowed for lesser than a year, the rates are:
- 1 month: 8.50%
- 3 months: 8.65%
- 6 months: 8.80%
5. For people considering loans offered by ICICI Bank, the MCLR rates are:
- 1-year tenor: 8.80%
- 2 years tenor: N/A
- 3 years- N/A
For loans borrowed for lesser than a year, the rates are:
- 1 month: 8.55%
- 3 months: 8.60%
- 6 months: 8.75%
6. For potential PNB borrowers, the rates are:
- 1-year tenor: 8.45%
- 2 years tenor: N/A%
- 3 years- 8.65%
For loans borrowed for lesser than a year, the rates are:
- 1 month: 8.10%
- 3 months: 8.15%
- 6 months: 8.35%
7. For Citibank borrowers, the rates are:
- 1-year tenor: 8.80%
*No other annual tenor available.
For the following banks, we strongly recommend considering annual MCLR rates. They are as follows:
8. Kotak Bank
- 1-year tenor: 9.00%
- 2 years tenor: 9.05%
- 3 years- 9.05%
9. IndusInd Bank
- 1-year tenor: 9.90%
- 2 years tenor: 10.00%
- 3 years- 10.05%
10. Yes Bank
- 1-year tenor: 9.70%
*No other annual tenor available.
**MCLRs are subject to change.
