Bank of Baroda, Canara Bank, BoM raise rates by up to 10 basis points

One year MCLR hiked to 8.7% with effect from Saturday

State-run Bank of Baroda, Canara Bank, and Bank of Maharashtra (BoM) have announced an increase in the marginal cost of fund-based lending rate (MCLR) by up to 10 basis points (bps) across all loan tenures.

This decision comes a day after the Reserve Bank of India (RBI) announced an increase the cash reserve ratio (CRR) for incremental deposits between May 19 and July 28.

With effect from August 12, banks are required to maintain a 10 per cent CRR on their incremental deposits during the period.

The one-year MCLR for both Bank of Baroda and Canara Bank will now be set at 8.70 per cent, an increase from the previous 8.65 per cent, beginning August 12. A majority of the loans are linked to the one-year MCLR.

Bank of Maharashtra has increased its MCLR by 10 basis points. With the hike, the rate of one-year MCLR rises to 8.60 per cent as compared to 8.50 per cent, the bank said in a filing. The revised rate is effective from August 10, it said.

MCLR is the benchmark rate to which various loans are linked, and any revision in the banks’ cost of funds leads to changes in this benchmark rate.

The implementation of the incremental CRR (I-CRR) will result in an increase in the cost of funds for the banks. CRR is the portion of cash that banks park with the RBI, and no interest is earned on these CRR balances.

The RBI had said the incremental CRR move was intended to absorb the surplus liquidity generated by various factors referred to earlier, including the return of Rs 2,000 notes to the banking system.

While announcing the move, RBI Governor Shaktikanta Das said: “The I-CRR will be reviewed on September 8, or earlier with a view to returning the impounded funds to the banking system ahead of the festival season.”