SBI Reduces MCLR Rates: How Will It Impact Your Loan EMI?

The State Bank of India (SBI) has reduced its Marginal Cost of Funds Based Lending Rate (MCLR) by five basis points across loan tenures, effective from Aug. 15, 2025. The reduction comes after the Reserve Bank of India (RBI) kept the repo rate unchanged during its Monetary Policy Committee (MPC) meeting earlier this month.

With this adjustment, SBI’s lending benchmark now ranges between 7.9% and 8.85%, down from 7.95-8.9% earlier.

The updated MCLR levels are as follows:

• Overnight: 7.9% (previously 7.95%)

• One month: 7.9% (previously 7.95%)

• Three months: 8.3% (previously 8.35%)

• Six months: 8.65% (previously 8.70%)

• One year: 8.75% (previously 8.80%)

• Two years: 8.8% (previously 8.85%)

• Three years: 8.85% (previously 8.90%)

Introduced by the RBI in April 2016, the Marginal Cost of Funds Based Lending Rate (MCLR) represents the lowest rate at which a bank can lend. It replaced the older base rate system to ensure quicker reflection of policy rate changes in customer loans.

Every loan linked to MCLR is reviewed at specific intervals, known as the reset period. During this reset, the loan’s interest rate is revised in line with the prevailing MCLR, which then directly affects the borrower’s monthly instalments.

The MCLR has a direct bearing on the interest payable for floating-rate loans. Any revision in MCLR changes the equated monthly instalments (EMI) once the loan reaches its next reset date.

For instance, if a loan is linked to the one-year MCLR and the bank lowers the rate, the benefit will only be visible after the annual reset, not immediately. This makes MCLR slower to reflect policy changes compared to repo-linked lending rates (RLLR), though it is still more efficient than the older base rate system.

• Transparent pricing: Calculated on defined factors such as repo rate, CRR and operational costs.

• Predictability: Resets occur at fixed intervals, allowing borrowers to plan repayments better.

• Cost efficiency: Generally, it offers more competitive rates than the base rate, particularly during periods of falling interest rates.

• Closer to policy signals: While less reactive than RLLR, it responds more effectively to RBI’s monetary policy than the base rate.

SBI’s move signals a small but welcome respite for retail borrowers, especially those repaying long-term loans. While the reduction is modest, even a few basis points can ease the overall loan burden for the remaining tenure for the existing borrowers. The new loan seekers can also benefit from the reduced interest rates.