MUMBAI: Days after the Reserve Bank of India (RBI) hiked the repo rate, the banks have begun raising their lending rates. Public sector lenders Punjab National Bank (PNB), Bank of Baroda, Central Bank of India and Canara Bank have raised their lending rates by up to 25 basis points.
“In view of the recent changes in Repo rate, Bank has revised the interest rates with effect from 10 February,” said Central Bank of India in a statement. Its new home loan rates have increased to 8.60% - 9.35% which was earlier at 8.35% - 9.10%. PNB has increased its Repo Linked Lending Rate (RLLR) to 9% from 8.75%.
Hike in lending rates by banks comes after the RBI, last week, raised repo rate by 25 bps points in its fight against inflation. An increase in banks’ MCLR and external benchmark-based lending rate is on expected lines as the hike in repo rate has raised the cost of funds for the lenders.
MCLR, which substituted the base rate in 2016, is the minimum rate below which a bank cannot lend. MCLR follows an internal benchmark where banks set interest rates based on their cost of mobilising funds for lending while RLLR is an external benchmark directly linked to RBI’s repo rate. From October 1, 2019, all banks have migrated to an interest rate linked to an external benchmark such as RBI’s repo rate or treasury bill yield.
Any revision in MCLR or external benchmark-based lending rate affects the interest on retail and corporate loans. The share of external benchmark-based lending rate-linked loans in total outstanding floating rate rupee loans of commercial banks stood at 47.6% at end-September 2022, while the share of MCLR-linked loans was 46.5%, according to Care Ratings.
Bank of Baroda has raised its MCLR by 5% across all tenures. The overnight MCLR rate has been increased to 7.90% from 7.85% earlier while one-month MCLR has been raised to 8.20% from 8.15%. One-year MCLR has been raised to 8.55% from 8.50%. The new rates have become effective from February 12. Canara Bank has increased its MCLR by 5 to 15 bps but the lender has reduced its RLLR by 15 bps to 9.25% with effect from 12 February.