Loan EMIs to go up for many borrowers as several banks have raised their repo-linked lending rates effective October 8, following the Reserve Bank of India’s 25 basis point increase in the repo rate to 5.50%.
The latest changes affect lending benchmarks at Punjab National Bank, Indian Bank, Bank of Baroda, Bank of India, Indian Overseas Bank and Tamilnad Mercantile Bank.
These revisions can increase borrowing costs for customers whose loans are linked to the affected external benchmarks.
Loan EMIs to go up after RBI rate hike
The RBI raised the repo rate by 25 basis points to 5.50% on October 7, marking its first increase in nearly four years.
The central bank also shifted its monetary policy stance from neutral to calibrated tightening.
Punjab National Bank raised its Repo Linked Lending Rate (RLLR) from 8.10% to 8.35%, including its 0.35% Business Strategic Premium.
The bank said its Marginal Cost of Lending Rate and Base Rate would remain unchanged.
Indian Bank increased its Repo Linked Benchmark Lending Rate from 7.95% to 8.20%.
Bank of Baroda also raised its Repo Based Lending Rate by 25 basis points, taking it from 7.90% to 8.15%.
Bank of India and Indian Overseas Bank have both raised their Repo Based Lending Rates to 8.35%, with the revised rates effective October 8.
Tamilnad Mercantile Bank increased its Repo Linked Lending Rate from 8.25% to 8.50%.
HDFC Bank takes a different route
HDFC Bank is an important exception to the broader rate-hike trend.
The private lender reduced its Marginal Cost of Funds-Based Lending Rate by 5 to 15 basis points across various tenures, with revised rates ranging from 7.75% to 8.55%.
This means borrowers should not assume that every loan rate has moved in the same direction.
The impact depends on the benchmark to which an individual loan is linked and the applicable reset terms.
What the new lending rates mean for borrowers
Repo-linked loans are generally more sensitive to changes in the RBI’s policy rate because their lending benchmarks are directly linked to the repo rate.
When a bank raises such a benchmark, borrowers with eligible floating-rate loans may face higher interest costs.
The effect on an existing borrower can depend on the loan agreement and reset mechanism.
A higher lending rate may result in a higher EMI, a longer repayment period, or a combination of both, depending on how the lender adjusts the loan.
For new borrowers, higher benchmark rates can increase the overall cost of borrowing.
Home loans, personal loans and other retail credit products linked to external benchmarks may therefore require closer attention after the latest policy change.
More banks may revise lending rates
The latest changes come soon after the RBI’s repo rate decision, and other lenders are also expected to review their benchmark lending rates.
Borrowers should check their bank’s latest applicable rate rather than assuming that all lenders have made identical changes.
For customers with floating-rate loans, the key factor is the benchmark and pricing mechanism mentioned in the loan agreement.
The latest bank-level revisions therefore make it important to understand which rate applies to an individual loan and when the next reset will take place.
