State Bank of India (SBI) has raised the marginal cost of funds-based lending rate (MCLR) by 15 basis points across tenors, making most consumer loans costlier for borrowers.
Why are loans impacted by RBI’s decision?
Generally, when RBI hikes the repo rate, it increases the cost of funds for banks. This means that banks will have to pay more for the money they borrow from RBI. Consequently, banks pass on the cost to borrowers by increasing their loan interest rates, making EMIs costlier.
As a result, both new and existing borrowers witness an increase in their loan interest rates.