Axis Bank’s Emi loan set to rise as lender raises interest rates by 25 basis points


By CNBCTV18.com STI (Update)

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The move comes after the Reserve Bank of India (RBI) raised its benchmark policy rates by 50 basis points last month to rein in headline inflation. With this rise in repo rates and the three previous increases, overall lending rates jumped at least 190 basis points, or 1.9%.

Joining its lending peers, Axis Bank increased the marginal cost of funds-based lending rate (MCLR) by 25 basis points (bps) percent across all tenors from October 18, i.e. today. As a result, the equivalent monthly installments (EMI) will become costly for those who benefit from loans compared to the MCLR.

What is the increase?

According to the Axis website, the one-night, one-month MCLR is 8.15%. Three-month MCLR is now at 8.25% and six-month at 8.30%. The one-year MCLR was set at 8.35% and the two-year MCLR at 8.45%.

Who will be impacted?

As mentioned, EMIs will be expensive for those who take out loans against the MCLR. The one-year MCLR is imperative because long-term loans from a bank like home loans are tied to this rate.

There is a reset period for loans based on the MCLR, after which the rates are reset for the borrower.

Why are banks raising their rates?

Along with Axis Bank, other banks are also increasing lending rates.

The move comes after the Reserve Bank of India (RBI) raised its benchmark policy rates by 50 basis points last month to rein in headline inflation. With this rise in repo rates and the three previous increases, overall lending rates jumped at least 190 basis points, or 1.9%.

Why are loans impacted by RBI’s decision?

Typically, when RBI raises the repo rate, it increases the cost of funds for banks. This means banks will have to pay more for the money they borrow from RBI. Therefore, banks pass the cost on to borrowers by raising the interest rates on their loans, making EMIs more expensive.

As a result, new and existing borrowers are witnessing an increase in interest rates on their loans.

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