State Bank of India (SBI) raised the marginal cost of funds-based lending rates (MCLR) for the first time in three years, signalling that the soft rates regime that has prevailed since 2019 may be over.



  • SBI raised the MCLR by 10 basis points (bps) across tenures to 7.1% (from 7% earlier); it is now slightly lower than the 7.25% at HDFC Bank, Punjab National Bank, and ICICI Bank.
  • As a result of the increase in MCLR, borrowers who have taken home, vehicle, and personal loans will find their equated monthly instalments (EMIs) rising in the coming months.


What is MCLR?

  • MCLR (Marginal Cost of funds based Lending Rate), which RBI instituted with effect from April 1, 2016, is the lowest interest rate that a bank or lender can offer.
  • This rate is based on four components—the marginal cost of funds, negative carry on account of cash reserve ratio, operating costs and tenor premium.
  • MCLR is linked to the actual deposit rates. Hence, when deposit rates rise, it indicates the banks are likely to hike MCLR and lending rates are set to go up.
  • It is applicable to fresh corporate loans and floating rate loans taken before October 2019.
  • RBI then switched to the external benchmark linked lending rate (EBLR) system where lending rate is linked to benchmark rates like repo or Treasury Bill rates.


About the EBLR

  • To ensure complete transparency and standardisation, RBI mandated the banks to adopt a uniform external benchmark within a loan category, effective 1st October, 2019.
  • Unlike MCLR which was internal system for each bank, RBI has offered banks the options to choose from 4 external benchmarking mechanisms: 
    • The RBI repo rate
    • The 91-day T-bill yield
    • The 182-day T-bill yield
    • Any other benchmark market interest rate as developed by the Financial Benchmarks India Pvt. Ltd.
      • T-Bill or Treasury bills are money market instruments issued by the Government of India as a promissory note with guaranteed repayment at a later date.
      • Financial Benchmarks India Pvt. Ltd was recognised by the Reserve bank of India as an independent Benchmark administrator on 2nd July 2015.