Mumbai: Changes in Lending Rates Following RBI Decision

Public sector banks are adjusting their lending rates after the Reserve Bank of India (RBI) lowered the repo rate by 50 basis points. Interestingly, this adjustment may benefit existing borrowers more significantly than new ones. This difference arises because banks tend to refine their already competitive mortgage rates to enhance their market presence.

For instance, Bank of Baroda has cut its Repo Linked Loan Rate (RLLR) by 50 basis points, bringing it down to 8.15% as of June 7th. Meanwhile, the National Bank of Punjab also reduced its RLLR by 50 basis points to 8.35%, effective June 9, without modifying its Marginal Cost of Funds-based Lending Rate (MCLR). The Bank of India followed suit, lowering its repo-based lending rate to 8.35% on June 6th, also a reduction of 50 basis points.

UCO Bank made adjustments as well, decreasing its RLLR to 8.30% from June 9th, while also lowering its MCLR by 10 basis points. The current MCLR stands at 9%. In a similar move, HDFC Bank reduced its MCLR by 10 basis points on June 7th, affecting both the overnight and monthly rates.

According to RBI guidelines, floating rate loans must align with the benchmark rate, so existing borrowers will see their costs decrease automatically. However, for new borrowers, the picture isn’t quite the same—banks are likely to adjust their spreads to maintain profit margins. For example, the revised mortgage rate for new borrowers at Bank of Baroda starts at 8%.

In order to preserve their profits, banks are also expected to lower the interest rates on fixed deposits, making them less appealing to savers. This dynamic is particularly interesting. Older borrowers seem to gain more from this competitive era, as many lenders are desperate to challenge the market leaders, thus offering lower rates.

Among the public sector options, Indian Bank, Maharashtra Bank, Central Bank of India, and Union Bank of India were already providing loans at 7.85% for amounts up to Rs 300,000, even before these rate cuts. Additionally, Kanara Bank, Indian Bank, and UCO Bank are offering mortgages at 7.90%, with Kanara’s rates applicable to loans exceeding Rs 750,000.

Last week, South Indian banks had the lowest private lender rates at 8.30% for loans up to Rs 300,000. Other banks, like Karur Vysya Bank, maintained a rate of 8.45%, while both PNB Housing Finance and Tamilnad Mercantile Bank offered 8.50%. Rates for Bandhan Bank, Axis Bank, and Karnataka Bank were noted at 8.66%, 8.75%, and 8.78%, respectively.