SBI and IOB Announce MCLR Rate Reduction: What It Means for Your Loans
- THE MAG POST
- Sep 4
- 4 min read
The State Bank of India (SBI) has recently announced a strategic reduction in its Marginal Cost of Funds-Based Lending Rate (MCLR), a move that could signal a broader trend of easing credit costs for consumers. This 5 basis point cut across all tenors, effective from August 15, 2025, impacts various loan products, including crucial home loans. This adjustment aligns with a cautious but potentially easing monetary policy environment, as banks recalibrate their lending strategies in response to economic indicators and central bank directives. Understanding these rate changes is vital for anyone managing existing debt or planning to take out new loans, as even modest reductions can lead to significant long-term savings.
SBI and IOB Slash Lending Rates: A Boon for Borrowers
In a move signaling a potential easing of credit costs, major public sector banks are adjusting their lending benchmarks. The State Bank of India (SBI), the nation's largest financial institution, has initiated a strategic reduction in its Marginal Cost of Funds-Based Lending Rate (MCLR). This adjustment, a modest yet significant 5 basis points across all loan tenors, took effect on August 15, 2025. This decision, while seemingly small, can translate into tangible savings for a vast number of borrowers, particularly those with outstanding loans tied to the one-year MCLR, a common benchmark for home and personal loans.
Decoding the MCLR Adjustments
The recent recalibration of SBI's MCLR brings several key lending rates down. Specifically, the overnight and one-month MCLR rates have been revised from 7.95% to 7.90%. Similarly, the three-month MCLR now stands at 8.30%, a decrease from 8.35%. For borrowers with medium-term loan requirements, the six-month MCLR has been adjusted to 8.65%, down from 8.70%. Perhaps most critically for many consumers, the benchmark one-year MCLR has been reduced to 8.75% from its previous 8.80%. Longer-term rates have also seen a downward revision, with the two-year MCLR now at 8.80% and the three-year MCLR at 8.85%.
Impact on Home Loan EMIs
The reduction in the one-year MCLR is particularly noteworthy for home loan borrowers. This rate often serves as the reference point for floating interest rate home loans. Consequently, a decrease in this benchmark rate typically leads to a reduction in the Equated Monthly Installments (EMIs). For a substantial home loan, such as one valued at approximately ₹30 lakh with a 20-year repayment period, this 5 basis point cut could translate to monthly savings in the region of ₹90 to ₹100. While this might appear incremental, over the long tenure of a home loan, these savings can accumulate, providing welcome financial relief.
Broader Market Context and RBI's Stance
This strategic move by SBI occurs in the wake of the Reserve Bank of India's (RBI) recent monetary policy committee meeting. The central bank opted to maintain the repo rate at its current level of 5.55%, retaining a 'neutral' stance. This decision to hold rates steady followed a period of monetary easing, where the RBI had implemented three rate cuts totaling 75 basis points in preceding meetings. Banks often adjust their MCLR in response to broader monetary policy signals and their own liquidity conditions, aiming to remain competitive while managing their cost of funds.
Indian Overseas Bank Follows Suit
Adding to the trend of reduced lending costs, Indian Overseas Bank (IOB) has also announced its own set of MCLR reductions. IOB's Asset Liability Management Committee (ALCO) convened on August 11, 2025, and decided to implement a 10 basis point cut in its MCLR across all tenors. This more significant reduction, also effective from August 15, 2025, aims to make its loan products more attractive to a wider customer base.
IOB's Revised Rate Structure
Under IOB's revised lending framework, the overnight MCLR has been lowered from 8.15% to 8.05%. The one-month MCLR now stands at 8.30%, a decrease from the previous 8.40%. For borrowers considering medium-term loans, the three-month MCLR has been adjusted to 8.45%, down from 8.55%. The six-month MCLR is now set at 8.70%, a reduction from 8.80%. Crucially, the one-year MCLR, a key benchmark for many retail loans, has been reduced to 8.90% from 9.00%. These adjustments reflect IOB's strategy to pass on potential cost efficiencies and enhance its market competitiveness.
Key Takeaways for Consumers
The synchronized rate cuts by SBI and IOB signal a positive development for borrowers across India. A 5 to 10 basis point reduction in MCLR, though seemingly minor, can lead to noticeable savings on loan EMIs over time, especially for long-term commitments like home loans. Prospective borrowers might find this an opportune moment to explore financing options, while existing borrowers can anticipate a slight decrease in their monthly repayment burdens. It is always advisable for individuals to consult with their respective banks to understand how these MCLR changes specifically impact their existing loan accounts and to explore any potential refinancing opportunities.
Bank | Rate Type | Previous Rate (%) | New Rate (%) | Reduction (bps) | Effective Date |
SBI | Overnight/1-Month MCLR | 7.95 | 7.90 | 5 | August 15, 2025 |
SBI | 3-Month MCLR | 8.35 | 8.30 | 5 | August 15, 2025 |
SBI | 6-Month MCLR | 8.70 | 8.65 | 5 | August 15, 2025 |
SBI | 1-Year MCLR | 8.80 | 8.75 | 5 | August 15, 2025 |
SBI | 2-Year MCLR | - | 8.80 | - | August 15, 2025 |
SBI | 3-Year MCLR | - | 8.85 | - | August 15, 2025 |
IOB | Overnight MCLR | 8.15 | 8.05 | 10 | August 15, 2025 |
IOB | 1-Month MCLR | 8.40 | 8.30 | 10 | August 15, 2025 |
IOB | 3-Month MCLR | 8.55 | 8.45 | 10 | August 15, 2025 |
IOB | 6-Month MCLR | 8.80 | 8.70 | 10 | August 15, 2025 |
IOB | 1-Year MCLR | 9.00 | 8.90 | 10 | August 15, 2025 |
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