BoB, Canara Bank, Bank Of Maharashtra Hike Lending Rates By Up To 10 Basis Points, EMIs To Rise

The move is set to make equated monthly installments (EMIs) linked to MCLR more expensive for borrowers. This comes even as RBI once again decided to maintain the status quo on repo rates

A number of public sector banks have raised their marginal cost of funds-based lending rates (MCLR) by up to 10 basis points following the Reserve Bank's Monetary Policy review on Thursday. The move is set to make equated monthly installments (EMIs) linked to MCLR more expensive for borrowers. This comes even as RBI once again decided to maintain the status quo on repo rates. 

So far, the Bank of Baroda (BoB), Canara Bank, and Bank of Maharashtra have announced raising MCLR, as per a PTI report.  MCLR, or Marginal Cost of Funds based Lending Rate, is the minimum interest rate set by a bank for lending. MCLR is used to calculate loan rates, like home loans. MCLR is the minimum lending rate below which a bank is not permitted to lend, as per RBI. 

According to a regulatory filing, the Bank of Baroda has revised the one-year MCLR to 8.70 per cent, a marginal increase from the existing rate of 8.65 per cent. This new rate will come into effect from August 12.

Similarly, Canara Bank also raised its MCLR by 5 basis points, setting the new rate at 8.70 per cent, effective from August 12.

Bank of Maharashtra, another public sector lender, implemented a more substantial increase by raising its MCLR by 10 basis points. Bank of Maharashtra's one-year MCLR is now 8.60 per cent, as opposed to the previous 8.50 per cent, as per its regulatory filing. This revised rate became effective on August 10, 2023.

On Thursday, RBI Monetary Policy Committee (MPC) announced to keep the policy rate unchanged at 6.5 per cent. This was the third time in a row that the RBI opted for a pause in rate hikes. The Reserve Bank of India Governor Shaktikanta Das said, "Further, with the monetary transmission still underway and headline inflation remaining higher than the 4 per cent target, the MPC decided to remain focused on the withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth."

Additionally, the Reserve Bank of India (RBI) also announced that it will come out with a framework allowing borrowers to switch to fixed interest rates from floating interest rates, a move that would provide relief to borrowers of home, auto, and other loans reeling under the impact of high-interest rate. Governor Shaktikanta Das said the lenders will have to clearly communicate with the borrowers about tenor and EMI.