Bank of Baroda to increase MCLR rates by up to 0.2% from August 12

Public sector lender Bank of Baroda on Wednesday informed the stock exchanges that it would raise the marginal cost of fund-based lending rates (MCLR) by 5-20 basis points (bps) across tenors, with effect from August 12.

Accordingly, the overnight MCLR now stands at 6.85 per cent, up 5 bps; one-month MCLR has been increased by 20 bps to 7.40 per cent; three-month MCLR has been hiked by 10 bps to 7.45 per cent; six-month MCLR is up 10 bps to 7.55 per cent; and one-year MCLR is up 5 bps to 7.70 per cent.

The interest rate hike comes after the Reserve Bank of India’s (RBI’s) six-member monetary policy committee (MPC) raised the benchmark repo rate by another 50 bps to 5.40 per cent last week.

Earlier this week, HDFC Bank and IDFC First Bank increased their MCLR by 5-10 bps and 5-15 bps, respectively. Mortgage lender HDFC also increased its home loan rates by 25 bps. The mortgage lender has raised its rates by 140 bps since May, thus passing on the entire rate hike done by the MPC to the borrowers.

Last week, public sector lender Canara Bank hiked its MCLR by 5-15 bps across loan tenors. Most lenders have hiked their external benchmark linked loan rates, following the repo rate hike last week.

The RBI’s latest data suggests that 43.6 per cent of loans in the banking system are linked to the external benchmark, which could be the repo rate or yields on government securities, such as 91-day and 182-day Treasury Bills. And, 49.2 per cent of loans in the banking system are linked to the MCLR.

While lenders have been quick to pass on the repo rate hike by the MPC to the borrowers, the deposit rates have not kept pace.

The MPC raised the repo rate to a three-year high of 5.40 per cent last week owing to inflation concerns and to shield the exchange rate, which has come under pressure since war broke out in Europe in February.

This is the third consecutive rate hike by the MPC since May. The RBI has raised its repo rate by 140 bps cumulatively since it started the process of monetary tightening to tame inflation, which has been above the RBI’s upper tolerance limit for quite some time now.