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Business News/ Industry / Banking/  Canara Bank hikes MCLR by up to 45 bps: EMIs to go up

The public sector lender Canara Bank has hiked home loan rates and other loan rates. Effective from 12.03.2023, the Marginal Cost of Funds Based Lending Rate (MCLR) of Canara Bank is going to hike its MCLR and the MCLRs will be effective till the next review. On the other hand, rates of Interest of all retail lending schemes are linked to Repo Linked Lending Rate (RLLR) has also been hiked by the bank.

The overnight MCLR has been raised by Canara Bank by 35 basis points to 7.90% from 7.55%, while the one-month MCLR has been raised by 45 bps to 8% from 7.55%. The six-month MCLR has climbed from 8.30% to 8.40% up by 10 bps, while the three-month MCLR has increased by 25 bps to 8.15% from 7.90%. The bank raised the MCLR for a 1 year tenor from 8.50% to 8.60%, up by 10 bps.

“The above MCLRs shall be applicable only to new loans/advances sanctioned/first disbursement made on or after 12.03.2023 and those credit facilities renewed / reviewed / reset undertaken and where switchover to MCLR linked interest rate is permitted at the option of the borrower, on or after 12.03.2023. The above MCLRs will be effective till next review," said Canara Bank in a statement.

“Existing borrowers of the Bank shall have an option to switch over to interest rates linked to MCLR (other than Fixed Rate Loans). Borrowers willing to switch over to the MCLR based interest rate may contact the branch," Canara Bank said in a statement.

W.e.f 12.02.2023, Repo Linked Loan Rate or RLLR of Canara Bank has also been revised and currently stands at 9.25%. “The revised rate will be applicable only to new accounts opened on or after 12.02.2023 & accounts completing 3 years under RLLR regime on or after 12.02.2023. The accounts not completing 3 years under RLLR will continue to be at 9.40%," mentioned Canara Bank on its website.

Anoop Kumar Bhargava, CEO and director, Empire Centrum said “MCLR (Marginal Cost of Funds Based Lending Rate), and it is the minimum interest rate that a bank can lend at. If a bank raises its MCLR, then the interest rates on loans linked to MCLR, such as home loans, will also increase. The effect of an MCLR hike on home loan borrowers would be that their EMI (Equated Monthly Instalment) would increase, as the interest component of their loan would increase. The magnitude of the increase in EMI would depend on the quantum of the rate hike and the outstanding principal amount of the loan."

“EBLR (External Benchmark Lending Rate), which is a new lending regime introduced by the Reserve Bank of India (RBI) in October 2019. Under this regime, banks are required to link their lending rates to an external benchmark, such as the RBI's repo rate. The EBLR regime is expected to make the transmission of policy rate changes to lending rates more effective. If a borrower's home loan is currently linked to MCLR and they are facing an interest rate hike, they may consider switching to EBLR. However, borrowers should carefully evaluate the costs and benefits of switching to EBLR, such as the processing fees and other charges that may be associated with switching. They should also consider the prevailing interest rate scenario and the possibility of future rate hikes or cuts," said Anoop Kumar Bhargava.

“Ultimately, the decision to switch to EBLR should be based on a comprehensive analysis of the borrower's financial situation and goals. Borrowers may also seek the advice of financial experts or consult their bank's customer service representatives to understand the implications of switching to EBLR," Anoop Kumar Bhargava further added. 

Speaking on how MCLR hike of banks affect borrowers, Shilpa Arora, Co-Founder and COO, Insurance Samadhan said “The MCLR, or Marginal Cost of Funds Based Lending Rate, is one of the crucial variables influencing your EMI. So, when MCLR rises, so does the interest money paid by borrowers. As their loan reset dates come around, the EMIs of current borrowers will be affected by the rise in the MCLR. The most recent hike will impact current borrowers, while new borrowers would have to take out loans at higher interest rates. Because it will make retail loans like home, auto, and personal loans as well as others more expensive, borrowers will need to be ready for increased monthly EMIs or tenor extensions."

“If your house loan was secured under the External Benchmark Linked Rate (EBLR), it is likely that your EMI would increase more quickly and in line with changes in the repo rate if it is tied to the repo rate. Nonetheless, base rate linked loans transmit more slowly than MCLR-linked loans, which transmit at the slowest speed. In my opinion, borrowers of home loans with floating interest rates will see higher interest rates and higher EMIs as a result of an increase in the MCLR. Yet, until the conclusion of their fixed rate period, customers with fixed rate home loans won't be impacted. The effect on borrowers' budgets will vary depending on the amount of the EMI rise and their financial status," said Shilpa Arora.

Abhay Kumar, Co-Founder & Program Director at IREF said “Banks use the MCLR (Marginal Cost of Funds based Lending Rate) as a baseline rate to ascertain the interest rates on a wide range of loans, including housing loans. A hike in MCLR would mean an increase in the interest rate for home loan borrowers, resulting in higher EMI (Equated Monthly Installment) payments and overall loan costs. More significantly, a rise in the MCLR could have an effect on a borrower’s future ability to borrow money because it will increase their debt-to-income ratio. They may find it more challenging in the future to be granted approval for additional loans or credit as an outcome of this."

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Vipul Das
Vipul Das is a Digital Business Content Producer at Livemint. He previously worked for (OneIndia News) and has over 5 years of expertise in the finance and business sector. Stocks, mutual funds, personal finance, tax, and banking are among his specialties, and he is a professional in industry research and business reporting. He received his bachelor's degree from Dr. CV Raman University and also have completed Diploma in Journalism and Mass Communication (DJMC).
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Updated: 11 Mar 2023, 03:33 PM IST
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