Home, auto loans turn cheaper after RBI cuts policy repo rate by 25 bps

Public-sector banks have started dropping their external benchmark linked lending rate (EBLR), a day after the Reserve Bank of India slashed the policy repo rate by 25 basis points (bps) on Wednesday. Retail loans like auto and home loans, and loans to small businesses are linked to the EBLR. Interestingly, Chennai-based Indian Bank cut their EBLR by 35 bps, while Punjab National Bank, UCO Bank, Bank of Baroda, and Bank of India’s reduction was in line with rate cut. 

Loans to mid and large corporates are linked to the marginal cost of funds based lending rate or MCLR which is yet to come down. Bank of Baroda informed the exchanges that it has kept MCLR for all tenors unchanged, with one year MCLR at 9 per cent. According to a report by Emkay Securities, successive rate cuts by the central bank will increase pressure on bank margins with a higher share of EBLR-linked loans. “We believe that consecutive and  swift rate cuts against the expected shallow rate cycle could accelerate pressure on margins for banks with higher share of floating rate (EBLR) loans, as deposit re-pricing (downward) could happen with a lag,” the report said. Anupreksha Jain

 

This is the second straight 25 bps repo rate cut by RBI. The central bank had reduced the repo rate by a similar amount in the February policy review.