Synopsis Bank of Baroda has hiked its marginal cost of funds-based lending rate (MCLR) by 25 to 30 basis points. The latest loan interest rates come into effect on December 12, 2022. Know how this latest revision in MCLR will impact your EMIs Getty Images For existing borrowers, the hike in MCLR will impact their EMIs when their loan reset date arrives. A whopping 35 basis points repo rate hike by the Reserve Bank of India (RBI) on December 7, 2022, has prompted many banks to increase their lending rates. Bank of Baroda is the latest lender to hike its marginal cost of funds-based lending rate (MCLR). The hike was between 25 to 30 basis points and spread across all the tenures, according to a BSE filing by the bank. The latest loan interest rates come into effect on December 12, 2022. After the latest revision, MCLR has surged from 7.25 per cent to 7.5 per cent for overnight tenure. The MCLR for one month has been raised from 7.70 per cent to 7.95 per cent. The MCLR for three-month tenure has climbed from 7.75 per cent to 8.05 per cent. The MCLR for six-month tenure has risen from 7.90 per cent to 8.15 per cent while MCLR for one-year tenure has been hiked from 8.05 per cent to 8.3 per cent, post revision. MCLR rate w.e.f from December 12, 2022 MCLR Tenors Existing MCLR (in %) MCLR w.e.f. 12th December 2022 (in %) Overnight 7.25 7.5 One Month 7.7 7.95 Three Month 7.75 8.05 Six Month 7.9 8.15 One Year 8.05 8.3 Source: BSE fling/Bank of Baroda What is MCLR? MCLR or marginal cost of funds-based lending rate 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 had disbursed home loans linked to MCLR till September 30, 2019. How MCLR hike will impact borrowers? Any revision in MCLR will directly impact the cost of loans as it implies an increase in the loan interest rate. If the interest rate on the loan goes up, EMIs will automatically increase unless the bank reduces its mark-ups/margins on loans. So, the borrowers now have to shell out more to pay EMIs for loans that are linked to MCLR. “Borrowers under the MCLR regime would see a marginal increase for the next two-three quarters to absorb the impact of the interest rate,” said Ajay Sharma, Managing Director, Valuation Services, Colliers India. For existing borrowers, the hike in MCLR will impact their EMIs when their loan reset date arrives. Usually, MCLR-based loans are linked to a tenure of 6 months or one year. On the reset date, banks usually calculate the future EMIs based on the 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. The lenders are free to ask for a markup over and above the MCLR, but the interest rate charged for the loans cannot be less than the MCLR. New borrowers will need to pay higher EMIs for their loans if they are linked to MCLR. What should home loan borrowers do amid rising interest rates? Suggesting ways to tackle high-interest regime and rising home loan EMIs, Sharma said, “The best way to tackle rising home loan interest rate would be to budget for higher EMI payout; plan for partial repayment at regular intervals to bring down the load of EMI; close any high-interest land being serviced as soon as possible. This ensures that cash flow is freed up to service the higher EMI load. In the case of home loans, based on the retirement age of the borrower, tenure extension is a possibility though it would not work in favour of the borrower over the period unless there are planned prepayments done regularly after availing longer loan tenure to reduce the EMI outflow and foreclose the loan in future.” Saturday, 10 Dec, 2022 Experience Your Economic Times Newspaper, The Digital Way! Read Complete Print Edition » Front Page Pure Politics Companies Companies & Around the World More Sops for India-Made EVs, Storage Systems on Table India’s electric mobility ambitions could get a boost in the upcoming budget, with the government examining incentives to encourage local manufacture of electric vehicles (EVs) and energy storage systems (ESS). 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Published on : 2022-12-10 06:52:26
Source :economictimes_indiatimes
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