Bank of Baroda, Punjab National Bank and other lenders have raised repo-linked lending rates by 25 basis points after the RBI lifted its policy rate to 5.5 per cent.
Several state-owned and private lenders moved quickly on Wednesday after the Reserve Bank of India raised its policy repo rate by 25 basis points to 5.5 per cent, passing the increase on to borrowers linked to external benchmarks. Bank of Baroda, Punjab National Bank, Indian Bank, Indian Overseas Bank, Bank of India and RBL Bank all lifted their repo-linked lending rates by the same margin, signalling that the central bank’s latest tightening step is feeding through to the loan market almost immediately.
According to Business Standard, Bank of Baroda raised its Baroda Repo Based Lending Rate to 8.15 per cent, while Punjab National Bank increased its repo-linked rate to 8.35 per cent from 8.10 per cent. Indian Bank moved its Repo-Linked Benchmark Lending Rate to 8.20 per cent, and Indian Overseas Bank raised its rate to 8.35 per cent. Bank of India also increased its Repo-Based Lending Rate to 8.35 per cent, while RBL Bank’s repo-linked lending rate stood at 8.50 per cent as of October 7. For new loans tied to the repo rate, the change translates into a higher borrowing cost right away.
The RBI’s decision on October 7 was the first repo-rate increase since February 2023, according to Livemint, and it came with a shift in policy stance from neutral to calibrated tightening. The six-member Monetary Policy Committee voted unanimously for the move, and the central bank said the next step could be either another increase or a pause, depending on how inflation and growth evolve. RBI Governor Sanjay Malhotra said rate cuts were not likely in the near term, underlining a more cautious policy tone than markets had been expecting.
The latest move is also expected to work through the wider banking system in stages. Existing loans linked to external benchmarks are generally repriced within 90 days, while deposit rates tend to adjust more slowly, particularly when banks already have ample liquidity. Business Standard reported that lenders are sitting on support from foreign currency non-resident deposits, although rates on new deposits may firm if money market borrowing costs continue to rise. Economists quoted by the newspaper expect the current tightening cycle to remain shallow, with a cumulative 75-basis-point increase likely over the course of the cycle.
UCO Bank also revised a broader set of benchmark-linked rates from October 8. The lender increased its three-month benchmark lending rate, lifted its six-month and 12-month Treasury bill-linked rates, and raised both its one-year government securities-linked rate and 10-year Gsec-linked rate. It also pushed up the repo-linked rates for UCO Float and UCO Prime. Moneycontrol reported that UCO Bank left its marginal cost of funds-based lending rate unchanged, suggesting that not every loan benchmark is moving in lockstep with the repo rate.
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