Karur Vysya Bank cuts MCLR by 10 bps across tenors: How EMIs may ease

Revision in bank's internal benchmark rate could lead to reduced interest costs for existing borrowers once their specific loan reset dates are reached

Karur Vysya Bank has reduced its marginal cost of funds-based lending rate (MCLR) by 10 basis points for all tenors, effective February 22. The decision, communicated on February 19, reflects the current cost of funds scenario and broader market conditions.

 

For borrowers whose loans are linked to the MCLR benchmark, the revision could result in a modest reduction in equated monthly instalments (EMIs), depending on their reset date.

 

What has changed?

 

Under the revised structure:

 

• Overnight MCLR: Cut from 8.90 per cent to 8.80 per cent
• One-month MCLR: Reduced from 9.05 per cent to 8.95 per cent
• Three-month MCLR: lowered from 9.05 per cent to 8.95 per cent
• Six-month MCLR: Reduced from 9.20 per cent to 9.10 per cent
• One-year MCLR: Trimmed from 9.20 per cent to 9.10 per cent

 

Following the revision, the one-month and three-month tenors are aligned at 8.95 per cent, while the six-month and one-year tenors now stand at 9.10 per cent.

 

 

MCLR’s importance

 

MCLR is the internal benchmark rate used by banks to price several floating-rate loans, particularly home loans and certain business loans sanctioned before the shift to external benchmark-linked lending rates.

 

A 10 basis point (0.10 percentage point) reduction may appear small, but over a long tenure such as a 20-year home loan, it can result in meaningful savings if the benefit is fully passed on. However, borrowers will see the impact only when their loan reaches its interest reset date, which may be monthly, quarterly, half-yearly or annually, depending on the loan agreement.

 

Who benefits?

Existing borrowers with MCLR-linked loans stand to gain, provided their reset cycle falls after the effective date. New borrowers taking loans under the MCLR regime may also see slightly lower starting interest rates.

 

That said, many recent retail loans are now linked to external benchmarks such as the repo rate. For such borrowers, changes in MCLR will not have a direct impact.

 

Borrowers should check their loan sanction letter to confirm the benchmark and reset frequency before expecting any change in EMI.