If you have a loan from Bank of Baroda or Canara Bank, there is an important update for you.
Both banks have increased their Marginal Cost of Funds Based Lending Rate (MCLR) for selected loan tenures.
The revised rates came into effect from August 12.
The increase is between 5 and 10 basis points, depending on the bank and loan tenure.
This change could affect borrowers whose loans are linked to the MCLR, as a higher lending rate can lead to higher EMIs.
How Will the MCLR Hike Affect Borrowers?
The impact will mainly be felt by customers whose loans are linked to MCLR.
When the applicable MCLR increases, the interest rate on a linked loan may also rise.
As a result, borrowers could see an increase in their monthly EMI or the overall repayment amount.
However, the exact impact will depend on the loan amount, interest rate, remaining tenure and the specific MCLR to which the loan is linked.
What Is MCLR?
MCLR stands for Marginal Cost of Funds Based Lending Rate.
It is the minimum lending rate below which banks generally cannot lend under the applicable MCLR framework.
The Reserve Bank of India (RBI) introduced the MCLR system in 2016.
Whenever the MCLR linked to a loan increases, the borrowing cost can also increase.
However, this change does not automatically affect every loan. It is mainly relevant to loans whose interest rates are linked to MCLR.
Canara Bank MCLR Rates
Canara Bank has increased its MCLR by 5 basis points for several tenures.
Following the revision, the bank’s MCLR rates range from 7.95% to 9.10%, depending on the tenure.
The 1-month MCLR has increased from 8.00% to 8.05%.
The 3-month MCLR has risen from 8.25% to 8.30%.
The 1-year MCLR has increased from 8.75% to 8.80%.
The 2-year MCLR has also gone up, from 9.05% to 9.10%.
Bank of Baroda MCLR Revised
Bank of Baroda has increased its MCLR by 10 basis points for the 3-month tenure.
Following the revision, the 3-month MCLR has increased to 8.20%.
The bank has not changed its MCLR for the 6-month and 1-year tenures in this revision.
This means the impact will depend on which MCLR tenure is linked to a customer’s loan.
What Should Existing Borrowers Do?
If you have a loan with either bank, check your loan agreement or account details to find out whether your interest rate is linked to MCLR.
If it is, the latest revision could affect your loan’s interest rate and repayment.
Borrowers should also check the applicable reset date of their loan, as the revised MCLR may not necessarily change the EMI immediately.