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One of the top newsmakers of the week is the State Bank of India. The SBI leads the country as the most prominent lending bank, influencing the decisions of other banks and agencies. The state-owned monetary authority recently announced an appraisal in its Benchmark Prime Lending Rate (BPLR) by 0.7%. The benchmark rate is the interest rate levied by the bank to act as a benchmark criterion for assessing all other interest rates. The new policy takes up the benchmark rate to 13.45% per annum from September 15, 2022 (Friday). SBI communicated the update on its website and social media platforms.
This move intends to make the loan repayment process more costly as the same is linked to the BPLR. An increase in the Benchmark Prime Lending Rate means an increase in what you will repay after the loan. The revision to 13.45% per annum will indeed impact the lending policies of other banks too.
Key Takeaways
- The SBI exceeded capitalisation in the market worth 5 lakh crore on this Wednesday, right after its shares touched new heights. The bank plans to hike rates to maintain the increasing market influence.
- The Benchmark Lending Rate is essential for any borrower to determine loan repayment. The SBI’s last revised BPLR rate was 12.75% from June 2022. With the latest update, this rate touches an all-time high of 13.45% per annum.
- Borrowers whose loans were taken at the earlier base rate will have to repay the hiked EMI amount now.
- However, these were the earlier benchmarks that banks used to disburse off loans. Modern-day banks primarily provide loans at the External Benchmark Based Lending Rate (EBLR). The Repo-Linked Lending Rate (RLLR) is also employed for the same.
- SBI follows a quarterly revision in the BPLR along with the base rate too. The revision would induce other banks to adjust their respective rates in the coming days.
- The revision of the BPLR comes a few weeks prior to the Reserve Bank of India’s meeting on monetary policy. The expectation with the meeting was that the benchmark rates nationwide are about to rise again for taming the growing inflation. This three-day meeting is scheduled to take place between September 28 and September 30.
Benchmark Lending Rate and its Impacts
The government tries to keep the Benchmark rate low to promote growth in lending and current finance. However, profit is also considered while deciding the rate. As banks and other lenders use the benchmark rate to determine interest rates for home loans or capital loans, the rate actually determines the prime rate. The SBI, despite being a state-authorised monetary institution, hit a Rs 5 lakh crore high market capitalisation on Wednesday. The new acquisition of market capitalisation takes the SBI to the seventh rank in the country’s ranking of market capitalisation agencies.
Financial analysts direct their decision to revise the rates in an attempt to maintain stability in profits. The increased rate will further benefit the bank in realising actual profits, given the scheduled meeting with the RBI expects to hike up bank rates anyway. The Indian economy has seen an increasing trend in loan rates over the past decade. The Reserve Bank of India (RBI) kept on increasing rates as early as January this year. In the current scenario, SBI’s hike comes ahead of RBI’s monetary policy meeting from September 28 to 30, which is expected to increase the rates further to calm inflation.
However, the banks used these benchmarks to disburse off loans. Today, banks usually establish their lending framework on the External Benchmark Based Lending Rate (EBLR). Even the Repo-Linked Lending Rate (RLLR) is used for the same. These rates have a significant impact on consumer behaviour and market business. The bank’s borrowers will have to think twice before making a conscious decision regarding loan repayment terms now. The growing inflation adds on to the burdening costs of an average Indian.
The SBI also increased the base rate by the same basis points. It stands at 8.7 % now, effective from Thursday. The borrowers’ EMI amount would also go up, even though they took loans at the base rate.
Recent Rate Revisions on the RBI website
According to the RBI’s website, specific revisions of bank rates have come into effect (as of August 30, 2022). These are –
Weighted average Lending rate (WALR):
- The Scheduled Commercial Banks (SCBs) increased the WALR on all new loans. The new rate is 8.18 %, effective from July 2022.
- WALR levied by public sector banks is now 14 basis points (bps) higher. It is currently 9.05 per cent, with effect from July.
- WALR imposed on outstanding rupee loans of the Scheduled Commercial Banks sees a hike from 8.93% to 9.01%, effective from July. The same for the public sector and private banks increased by five bps and ten bps respectively.
Marginal Cost of Fund-based Lending Rate (MCLR):
- The MCLR of Scheduled Commercial Banks hiked from July’s 7.55% to 7.65% in August.
- The MCLR for public sector banks increased from July’s 7.55% to 7.65% in August.
- The MCLR for private banks further increased by three bps to 8.53% during August.
