Bank of Baroda and Canara Bank increase their Marginal Cost of Funds Based Lending Rate (MCLR) from August 12, potentially leading to higher EMIs on loans linked to this benchmark, amidst stable RBI repo rates.
Bank of Baroda and Canara Bank have increased lending rates on selected tenures from August 12, a move that is likely to nudge up borrowing costs for some customers with loans linked to the Marginal Cost of Funds Based Lending Rate, or MCLR. According to India Today, Bank of Baroda lifted its three-month MCLR by 10 basis points to 8.30%, while Canara Bank raised most of its MCLR tenures by 5 basis points, leaving only its overnight rate unchanged at 7.95%.
MCLR is the internal benchmark banks use to price many loans, and it sets a floor below which lenders generally cannot go, except in specific cases allowed by the Reserve Bank of India. That means the change will matter most for borrowers whose loans are tied to this benchmark and whose reset date falls after the revision. For them, the increase can translate into a higher monthly repayment or a longer tenure, depending on how the loan contract is structured.
The latest moves come after the Reserve Bank of India kept its repo rate unchanged at 5.25% at its August 5 policy meeting, suggesting the banks’ decisions were driven more by their own funding costs than by any central bank tightening. Earlier this year, Canara Bank had already raised its MCLR by 5 basis points across all tenures, while Bank of Baroda had held its rates steady, showing that these revisions can differ sharply even among large lenders. Reports from Livemint and other financial outlets this year have repeatedly linked such MCLR changes to home loans, car loans, auto loans and personal loans.
For banks, higher MCLR is a way to protect lending margins when the cost of deposits and other funding rises. But lenders also have to avoid pushing borrowing costs so far that customers delay new loans or turn to rival products. In that sense, the latest adjustments are modest, but they still matter for households tracking every rise in EMI outgo.
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