SBI hikes MCLR by 10 bps, taking it to 20 bps since April

This is a follow up on the hike of 10 bps announced in April which was ahead of the RBI rate hike of 40 bps last month.

State Bank of India(SBI), the largest PSU Bank hiked its Marginal Cost of Funds Lending Rate( MCLR) by 10 basis points (bps) across tenures with effect from Sunday.

With effect from May 15, MCLR for overnight, one month and three months had been hiked from 6.75% to 6.85%. For six months, MCLR is increased from 7.05% to 7.15%. SBI’s one-year MCLR has been hiked to 7.20% from the previous 7.10%; MCLR for two years has been raised to 7.40% compared to their previous 7.30%, while for three years the benchmark is increased to 7.50% which previously stood at 7.40%.

For the uninitiated MCLR is the minimum/lowest interest rate below which the bank cannot lend. It is arrived at after considering the tenor of loan, the marginal cost of funds of a similar tenor raised by the bank. After considering the relative risk factors of individual borrowers, a spread is added to MCLR to arrive at the interest rate on the loan. With the hike in repo rate, cost of funds for banks has increased and hence the hike in MCLR.

Around half of the personal loans and home loans and a majority of vehicle and education loans are linked to MCLR while the balance is on external benchmark.

While the hike in MCLR would mean the existing loans becoming costlier for the borrowers as most of the loans are subject to a floating rate, it would at the same time mean better NII and NIIM for the bank since there is a lag in the hike in lending rate and deposit rate ( deposits get repriced when they mature).

On Friday, the bank announced a strong quarterly performance which was, however, below market estimates. The Net Profit of the bank increased by 41.28% YoY in Q4FY22 and stood at Rs 9,114 crore as against Rs 6,451 crore a year ago. The bank recorded its highest quarterly profit breaking the record of previous quarters. The Net Interest Income (NII) grew by 15.26% from Rs 27,067 crore to Rs 31,198 crore during the same period. The advances of the bank grew by 8.47% from Rs 25,39,393 crore to Rs 28,18,671 crore for the same period. Operating profit (excluding exceptional item) of the bank was marginally up by 0.08% YoY in Q4FY22 to Rs 19,717 crore.

At the time of writing, the shares of SBI are trading at Rs 455.70 up 2.49% or Rs 11.05.