Bank of Baroda has delivered a jolt to its customers by increasing its Marginal Cost of Funds-based Lending Rates (MCLR).
The bank has hiked its MCLR by 5 basis points (bps) for loan tenures of 3 months, 6 months, and 1 year, effective from August 12, 2024.
This increase in MCLR will directly impact the Equated Monthly Installments (EMIs) for borrowers, making home and car loans more expensive.
Details of MCLR Hike
In its regulatory filing on August 9, 2024, Bank of Baroda announced the revised MCLR rates:
3-Month MCLR: Increased from 8.45% to 8.50%
6-Month MCLR: Increased from 8.70% to 8.75%
1-Year MCLR: Increased from 8.90% to 8.95%
This hike of 5 basis points (where 1 basis point equals 0.01%) may seem small, but it can significantly affect the overall loan cost over time.
However, the bank has kept its overnight MCLR at 8.15% and 1-month MCLR at 8.35%, with no changes.
Impact on Borrowers
MCLR, introduced by the Reserve Bank of India (RBI) in 2016, serves as a benchmark interest rate that banks use to determine their lending rates.
Banks cannot lend below this rate, and when setting loan rates, they add a spread to the MCLR. The recent increase in MCLR will affect borrowers with loans linked to this rate, raising their interest rates.
Consequently, this will lead to higher EMIs and an increase in the total cost of the loan, potentially reducing borrowers’ disposable income and making it more challenging to secure new loans.
This adjustment by Bank of Baroda underscores the importance of monitoring loan-related announcements, as even small changes in interest rates can have a significant impact on personal finances.
