Major banks Bank of Baroda and Canara Bank have increased their MCLR rates. Discover how these changes might affect your monthly EMIs and loan tenures.
Key Takeaways
- Bank of Baroda increased its 3-month lending rate by 10 basis points.
- Canara Bank raised MCLR by 5 basis points across most tenures.
- The hike is driven by banks' internal funding costs, not an RBI repo rate change.
- Borrowers with MCLR-linked loans may face higher EMIs or longer tenures.
In a significant move for the Indian banking sector, Bank of Baroda and Canara Bank have announced an increase in their lending rates. Effective from August 12, these changes impact the Marginal Cost of Funds-Based Lending Rate (MCLR), which serves as the benchmark for various loan products.
Detailed Breakdown of the Rate Hike
According to official announcements, Bank of Baroda has bumped its three-month lending rate by 10 basis points, moving it from 8.20% to 8.30%. Other MCLR rates for the bank remain unchanged. Meanwhile, Canara Bank has implemented a more widespread increase of 5 basis points across most tenures. For instance, its one-month rate has climbed from 8% to 8.05%, and its three-month rate has risen from 8.25% to 8.30%.
Why This Matters
BozokMedia analysis shows that this hike is not a direct consequence of the Reserve Bank of India (RBI) adjusting the repo rate, which has remained steady at 5.25%. Instead, this is an internal adjustment. Banks are facing higher costs to raise funds, and to protect their profit margins, they must pass some of these costs on to borrowers by increasing the MCLR.
Even a minor increase in basis points can lead to a substantial increase in the total interest paid over the life of a long-term loan.
The MCLR is a critical benchmark. For borrowers whose loans are tied to this rate, the impact will be felt during the next 'reset period.' Depending on the bank's policy, this could manifest as an increase in your monthly EMI or an extension of your loan repayment duration.
| Bank Name | Type of Change | Change (bps) |
|---|---|---|
| Bank of Baroda | 3-Month Rate | +10 bps |
| Canara Bank | Most Tenures | +5 bps |
Frequently Asked Questions
1. Will my current EMI increase immediately?
Not necessarily. It depends on your loan's specific reset date and whether your loan is linked to the MCLR benchmark.
2. Why did banks raise rates if the RBI kept the repo rate unchanged?
Banks raise MCLR based on their own cost of acquiring deposits and funds, which can rise independently of the RBI's policy rate.
