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Major Indian Banks Raise Lending Rates After RBI Hikes Repo Rate by 25 BPS

· · 2 min read

Indian banks, including PNB and Bank of Baroda, have swiftly increased their lending rates. This follows the Reserve Bank of India's decision on October 7 to raise its key repo rate by 25 basis points to 5.50%, making loans costlier for borrowers.

Major lenders across India, including state-owned Punjab National Bank (PNB), Bank of Baroda (BoB), and Indian Bank, have announced an immediate upward revision in their lending rates. This move comes just hours after the Reserve Bank of India (RBI) increased its benchmark repo rate by 25 basis points (bps) to 5.50% on October 7.

The central bank's decision marks the first rate hike in nearly four years and signals a shift in its policy stance to “calibrated tightening.” This new approach effectively closes the door on immediate future rate cuts, as the RBI aims to combat accelerating inflation and a depreciating domestic currency.

RBI's Monetary Policy Committee Decision

The six-member Monetary Policy Committee (MPC) unanimously voted to raise the repo rate. This also marks the first rate increase under Governor Sanjay Malhotra, who assumed office in December 2024. While the market widely anticipated a rate increase, the pivot to “calibrated tightening” surprised many observers.

Banks Respond with Higher Lending Rates

Following the RBI's announcement, several banks quickly adjusted their borrowing benchmark rates:

  • Punjab National Bank (PNB): Revised its Repo Linked Lending Rate (RLLR) from 8.10% to 8.35%, effective October 8. Its Marginal Cost of Funds Based Lending Rate (MCLR) and Base Rate remain unchanged.
  • Bank of Baroda (BoB): Increased its Repo-Based Lending Rate (RBLR) by 25 basis points, moving from 7.90% to 8.15%.
  • Indian Bank: Hiked its Repo Linked Benchmark Lending Rate (RBLR) to 8.20% from 7.95%, effective October 8.
  • Bank of India (BoI) and Indian Overseas Bank (IOB): Both raised their RBLR to 8.35%, also effective October 8.
  • Tamilnad Mercantile Bank: This private sector lender increased its RLLR from 8.25% to 8.50%.

Other public and private sector lenders are widely expected to follow suit with similar rate adjustments in the coming days, further impacting the cost of loans for consumers and businesses across the country.

Impact on Borrowers

The immediate consequence of these rate hikes is that various loans, including home loans, auto loans, and personal loans linked to the repo rate, will become more expensive. Borrowers can anticipate higher Equated Monthly Installments (EMIs) as these changes take effect.

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