Bank Of Baroda Revises MCLR From 7.85% To 7.90%; Know its Effect

Bank of Baroda, a public sector lender, announced on Thursday the approval of a 5 basis point (bps) increase to the rates for MCLRs across all tenors. The revised rates will come into effect from Sunday, February 12, 2023. The decision was taken against the backdrop of the Reserve Bank of India’s decision to increase the repo rate by 25 basis points to 6.50%. From May 2022, the central bank has revised repo rates five consecutive times to reduce inflation. One of the repercussions of inflation was a hike in interest rates.

Bank of Baroda increased the MCLR by 5 basis points to 7.90% from 7.85% earlier. On the other hand, one month tenure is hiked by 5 bps to 8.20% from the earlier 8.15%. The three-month MCLR was previously 8.25%; it is now pegged at 8.30%. Among other things, the six-month MCLR has been changed from 8.35 to 8.40%, according to the notification of the Bank of Baroda. The bank announced that the new rate will be hiked to 8.55 %from 8.50 %for one-year maturities.

Effects

Retail lending, which includes mortgages, consumer credit, and small- and medium-sized business loans, is mostly based on external benchmarks like the policy repo rate. If the loan’s interest rate increases, the EMIs will likewise climb until the bank lowers the markups or margins it charges for loans. As a result, borrowers of loans that are tied to the MCLR would now have to fork over extra money to pay their EMIs.

When the loan reset date comes around, existing borrowers whose loans are tied to the MCLR will see an increase in their EMIs. This increase reflects the rising cost of capital as banks raise the rates on term deposits to draw in capital to meet the demand for lending.

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