Bank of Baroda and Canara Bank have increased their marginal cost of funds-based lending rates (MCLR) effective August 12, leading to higher monthly EMIs for borrowers amidst tightening monetary conditions in India.
Borrowers linked to the marginal cost of funds-based lending rate, or MCLR, at Bank of Baroda and Canara Bank faced higher monthly instalments after both lenders revised benchmark rates effective August 12. The move came on top of a period of tighter monetary conditions, with lenders using the reset to pass through funding costs to customers whose loans are tied to internal benchmark rates rather than external references such as the repo rate. According to the banks’ rate notices, the increases were limited to selected tenures, with the adjustments reaching as much as 10 basis points.
Canara Bank raised its MCLR by 5 basis points across several maturities. The overnight rate was set at 7.90%, the one-month rate at 8.00%, the three-month rate at 8.15%, the six-month rate at 8.40% and the one-year rate at 8.35%, according to its earlier March revision. Later changes published by the bank showed another set of updates from August 12, lifting some tenures again and pushing the range of lending rates higher for affected borrowers.
Bank of Baroda also lifted its MCLR, though the change was narrower. LiveMint reported that, effective August 12, the lender increased the overnight rate to 7.95%, the one-month rate to 8.25%, the three-month rate to 8.30%, the six-month rate to 8.40% and the one-year rate to 8.70%. In an earlier round of adjustments, the bank had already raised its MCLR across tenures in response to a higher policy-rate environment, underscoring how quickly floating-rate borrowers can feel the impact of monetary tightening.
MCLR, introduced by the Reserve Bank of India in 2016, is the internal benchmark below which banks generally cannot lend. When it rises, borrowers on MCLR-linked loans usually see EMI payments increase, though some loans may instead see the repayment period extended. That means the effect depends on the loan contract, but the direction is the same: higher borrowing costs for customers exposed to the benchmark.
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