The Bank of Baroda on Friday announced hike in lending rates by 5 basis points (bps) on 3-month, 6-month, and 1-year tenures, with effect from August 12, 2024. As peer the regulatory filing by the bank on August 9, the bank said it has reviewed/ changed marginal cost of funds based lending rate (MCLR) with effect from August 12, 2024. With the latest hike in the marginal cost of funds-based lending rates (MCLR), the loan EMIs will increase for borrowers.
In a statement, the Bank of Baroda said it has hiked its 3-month MCLR from 8.45 per cent to 8.50 per cent, its 6-month MCLR from 8.70 per cent to 8.75 per cent, and the benchmark 1-year MCLR from 8.90 per cent to 8.95 per cent. It is a 5 bps hike on each tenure.
However, the Bank of Baroda kept its overnight MCLR and 1-month MCLR unchanged at 8.15 per cent and 8.35 per cent, respectively.
What is MCLR?
The marginal cost of lending rates which was first introduced by the Reserve Bank of India (RBI) in 2016 is a benchmark interest rate that banks can use to determine their lending rates. As per the RBI guidelines, no bank can give loans below this rate and when deciding on loan rates, banks use MCLR and add spread.
If the MCLR increases, it leads to higher interest rates on loans linked to this rate which causes borrowers to face higher EMIs and increased overall borrowing costs.
The MCLR hike also reduces disposable income and can deter new borrowing, impacting personal finances and business investments.
Other banks hike MCLR rate
Apart from the Bank of Baroda, other leading public-sector banks, including Canara Bank, and UCO Bank, have also increased their Marginal Cost of Funds-based Lending Rate (MCLR) across various tenures, resulting in higher costs for most consumer loans.
This move from these banks after the Reserve Bank of India’s (RBI) decided to maintain the benchmark interest rate at 6.50% for the ninth consecutive meeting.
Recently, the UCO Bank’s Asset Liability Management Committee (ALCO) has approved a 5 basis points (bps) increase in the lending rate for specific tenures, effective August 10, 2024.
Apart from this, the Canara Bank also increased its lending rate by 5 bps across tenures, effective from August 12, 2024.
