RBI Rate Hike Makes Loans Costlier As Major Banks Raise Lending Rates

The Reserve Bank of India’s (RBI's) decision to raise the repo rate by 25 basis points to 5.50 per cent has quickly pushed up borrowing costs at major banks.

Punjab National Bank (PNB), Indian Bank, Bank of Baroda (BoB), Bank of India (BoI), Indian Overseas Bank (IOB) and Tamilnad Mercantile Bank have announced increases in lending rates linked to the repo rate.

The changes will take effect from October 8, making loans tied to these benchmarks more expensive for borrowers.

PNB, Indian Bank Raise Lending Rates

PNB has raised its Repo Linked Lending Rate (RLLR) by 25 basis points to 8.35 per cent from 8.10 per cent. The new rate includes a 0.35 per cent bank spread and will apply from October 8.

The bank has not changed its Marginal Cost of Lending Rate (MCLR) or Base Rate following the RBI’s decision. This means the immediate increase will impact loans that are linked specifically to the repo-based benchmark.

Indian Bank has also raised its Repo Linked Benchmark Lending Rate (RBLR) to 8.20 per cent from 7.95 per cent. The new rate will apply from October 8. Bank of Baroda has increased its Repo-Based Lending Rate by 25 basis points to 8.15 per cent from 7.90 per cent.

More Banks To Follow RBI Move

Bank of India and Indian Overseas Bank have also raised their Repo-Based Lending Rate to 8.35 per cent from October 8. Tamilnad Mercantile Bank has increased its Repo Linked Lending Rate to 8.50 per cent from 8.25 per cent.

For borrowers with loans linked to these benchmarks, the increase can push up equated monthly instalments (EMIs), depending on the loan amount, tenure and rate reset terms.

The impact will be different for borrowers depending on the type of loan and the benchmark used by their bank. Loans linked to fixed rates will not see an immediate change from this move.

RBI Signals Shift In Policy

The bank rate increases came within hours of the RBI’s Monetary Policy Committee (MPC) raising the repo rate to 5.50 per cent on Wednesday. The decision marked the first repo rate hike in nearly four years.

The six-member committee voted unanimously for the increase. It also changed its policy stance to “calibrated tightening”, indicating that interest rates could move higher if inflation and other economic pressures warrant further action.

The rate increase comes at a time when the rupee has weakened against the US dollar and inflation pressures have become a key concern for policymakers. More banks could revise their repo-linked lending rates in the coming days as the impact of the RBI’s policy decision passes through to the banking system.