Following the repo rate hike by the Reserve Bank of India (RBI), several major banks have increased the interest rates on their loans. This news is important for those planning to take out a mortgage, car loan, or any other type of loan.
Several banks, including Punjab National Bank (PNB), Indian Bank, Bank of Baroda, Bank of India, Indian Overseas Bank, and Tamilnadu Mercantile Bank, have adjusted some of their lending rates. Many of these new rates came into effect on October 8th.
On Wednesday, the RBI raised the repo rate by 25 basis points, bringing it to 5.50 percent. This is the first repo rate increase by the central bank in approximately four years. The RBI has hinted at a possible further increase in rates amid rising inflation and currency depreciation. The six-member Monetary Policy Committee (MPC) of the RBI unanimously decided on the repo rate hike.
This was the first such increase since Sanjay Malhotra became the RBI governor in December 2024, and it met market expectations.
PNB, one of the country's largest public sector banks, raised its repo rate linked loan rate (RLLR) from 8.10% to 8.35%. This new rate includes a banking spread of 0.35%. According to PNB, the new rate will be effective from October 8th. Furthermore, the bank has not changed the calculation method based on Marginal Cost of Funds based Lending Rate (MCLR) and the base rate, meaning the impact on old and new customer loans will vary depending on the linked rate.
Indian Bank increased its repo rate linked loan rate (RBLR) from 7.95% to 8.20%, and this new rate also takes effect on October 8th. Similarly, Bank of Baroda raised its repo rate linked loan rate from 7.90% to 8.15%, corresponding to an increase of 25 basis points.
Bank of India and Indian Overseas Bank also raised their RBLR to 8.35%. The new rates in both banks will start applying from October 8th. Bank of India noted in its report that this change was made following the RBI's repo rate hike.
In addition to public sector institutions, Tamilnadu Mercantile Bank also increased its RLLR, raising it from 8.25% to 8.50%. This demonstrates that the impact of the repo rate change is not limited to public sector banks, and other banks may change their corresponding lending rates soon.
Following the repo rate increase, banks have changed the loan rates tied to it. This means that all loans linked to a Floating Interest Rate or External Benchmark (EBLR/RLLR) will become more expensive. If your car loan, mortgage, education loan, consumer, or business loan has a floating rate, your Equated Monthly Installment (EMI) will increase or the loan tenure will extend. However, the actual impact depends on your loan's interest rate, outstanding amount, and other conditions. In the case of PNB, since MCLR and the base rate have not yet changed, it cannot be assumed that the customer's EMI will immediately rise after the repo rate hike.
The RBI signaled the possibility of further rate hikes. Therefore, attention is now focused on when and how much other banks will change their lending rates. If other banks also raise their repo-linked or other related rates, the cost of new loans could increase in the coming days. The impact on existing customers will depend on the rules associated with their loan's interest rate.