SBI Just Reduced Its MCLR. Learn How It Will Affect Your EMI.

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Pranjal Singhal

Content Curator

State Bank of India (SBI) just reduced its Marginal Cost of funds based Lending Rate (MCLR) by 5 bps. 1 bps or basis point is equal to 0.01%. Thus, it means the bank’s 1-year MCLR which earlier used to be 8.55% will now be only 8.50%. Since all the interest rates for different loan schemes and also the savings accounts are based on 1-year MCLR, all of them will be coming down from April 10, 2019. This decision is likely to affect your SBI Education Loan too.

What is MCLR?

Marginal Cost of funds based Lending Rate or simply MCLR is the minimum interest rate below which a bank is not allowed to lend. The MCLR system was implemented by the RBI on April 1, 2016, and replaced the previous base rate system.

The main difference between the base rate and MCLR is that in the base rate system, the transmission of interest rates wasn’t effective. This means that even if RBI makes a change in the repo rate, the base rate would remain unaffected. Thus, the full benefit couldn’t go to the customers. MCLR replaces this system and serves as a bridge between RBI’s announcements and customer’s benefits.

The decision comes in the wake of the recent cut in the repo rate by the Reserve Bank of India (RBI). On April 4, the RBI cut the repo rate by 25 bps, the rate at which it lends money to the banks. Thus, this cut by SBI was very much expected in accordance with the rules and the guidelines.

1. How much will my interest rate decrease?

For the general education loan scheme, i.e., SBI Student Loan Scheme, the RoI used to be:

  • For a loan up to INR 7.5 Lakhs: 10.55%

  • For a loan above INR 7.5 Lakhs: 10.80%

Now as the 1-year MCLR is reduced, the new RoI is likely to be:

  • For a loan up to INR 7.5 Lakhs: 10.50%

  • For a loan above INR 7.5 Lakhs: 10.75%

2. How will my pocket be affected?

So how much is this change going to affect you? Let’s calculate.

Assumptions: Loan Amount= INR 5,00,000

                         Course Duration= 4 Years

                         EMI Period= 10 Years

Since the loan amount is less than INR 7.5 Lakhs, therefore, the RoI will be 1-year MCLR+2.00%.

At 1-year MCLR=8.55%

Monthly EMI= INR 6761

Total amount paid= (6761*12) * 10 years = INR 8,11,320

At 1-year MCLR=8.50%

Monthly EMI=INR 6747

Total amount paid= (6747*12) * 10 years = INR 8,09,640

Note: This calculation is valid when you start paying the interest while your study is going on. The moratorium period, in this case, will be 5 years.

3. How will the other schemes be affected?

The same effect will be visible on every other scheme. Whether we talk about the Scholar Loan Scheme, the Global Ed-Vantage Scheme or the Vocational Education and Training Loan Scheme, all the interest rates are dependent on the 1-year MCLR fixed by the bank. Thus, each of these schemes will see a drop of 0.05% in the interest rates.

4. Do I need to do anything?

Usually, when the interest rate is changed due to a change by RBI in the repo rate, the bank doesn’t ask you for any formality. When a bank makes changes in its policies, at that time they might ask you to sign particular forms and stamp papers.

But this varies from bank to bank so do contact your branch for more details on this.

5. Is there any change in the documents required?

This change in the MCLR won’t be affecting the list of the documents that the bank asked you for. Generally, the documents required include:

  • Admission letter from the university

  • Attested copies of ID Proof like Aadhar, PAN Card, Passport, etc.

  • Passport-size photographs

  • Marksheets of previously qualified courses

  • ITR file copies of the parents/guardians

  • Bank Account Statement

  • Collateral security (if applicable)

If SBI Education Loan for abroad education is pursued, the bank would also ask for Passport and Visa details.

But the recent changes in MCLR won’t be having any effect on this. The only possibility is that the bank might ask you to sign a stamp paper or affidavit, or a particular form, which mentions that the interest rate has been reduced and you are acknowledging that.

The highest interest charged by SBI Education Loan for any scheme will now stand at just 10.75%. The lowest being just 8.70%.