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Equated monthly instalments (EMIs) on retail and small business loans are set to fall as large public-sector banks, including Punjab National Bank and Bank of Baroda, have reduced the external benchmark-linked loans rates from Monday.
The move comes after Reserve Bank of India on Friday reduced the policy repo rate by 25 basis points (bps) to 6.25 per cent.
While PNB reduced the Repo-Linked Lending Rate (RLLR) by 25 bps to 9 per cent, Bank of Baroda has cut Baroda Repo-Linked Lending Rate (BRLLR) to 8.90 per cent. Bank of Baroda has added a spread of 2.65 per cent over the current repo rate of 6.25 per cent.
Both PNB and BoB’s new rates come into effect from Monday.
Among private-sector banks, RBL Bank has reduced the repo linked lending rate to 11.35 per cent.
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All floating rates of retail loans like housing, auto and floating rate of loans to micro, small, and medium enterprise are linked to the external benchmark.
HDFC Bank, the country’s largest private-sector lender, has increased its marginal cost of funds-based lending rate (MCLR) on the overnight tenure by 5 basis points (bps) to 9.20 per cent from 9.15 per cent earlier.
With this revision, the bank’s MCLR now ranges from 9.20 per cent to 9.45 per cent.
With a cut in the policy repo rate, external benchmark-linked loans get repriced immediately to reflect the cut, but MCLR-linked loans take up to two quarters to show the change in policy rates. About 40 per cent of the banking system’s loans are linked to the external benchmark, and a similar percentage of loans are linked to the MCLR.
While most retail loans are linked to an external benchmark, corporate loans are linked to the MCLR.
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