This Bank Increases Loan EMIs; Heres Why

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Bad News for Bank Customers: This Bank Increases Loan EMIs; Here’s Why

Bank of Baroda recently announced a hike in lending rates by 5 basis points (bps). The increase applies to 3-month, 6-month, and 1-year tenures, effective from this date.

Updated: August 10, 2024 4:38 PM IST

By Joy Pillai

Bad News for Bank Customers: This Bank Increases Loan EMIs; Here’s Why
Bank Of Baroda Hikes Lending Rates: India’s leading public sector bank, Bank of Baroda, known for its strong domestic presence, announced on Friday a hike in lending rates by 5 basis points (bps). This hike will be implemented on 3-month, 6-month, and 1-year tenures, effective from Monday, August 12. According to a regulatory filing by the bank on Friday, BoB stated that it has adjusted the marginal cost of funds-based lending rate (MCLR). As a result, loan installments will increase for borrowers.
As per the statement, BoB has increased its 3-month MCLR to 8.50 percent, earlier it was 8.45 percent. The 6-month MCLR hiked by 8.75 percent (earlier 8.70 percent), and1-year MCLR from 8.90 percent (earlier 8.95 percent). The Bank of Baroda has seen a 5 basis point augmentation in interest rates on each tenure, though the overnight MCLR rests at 8.15%, with the 1-month MCLR standing strong at 8.35 percent.
Banks Increase MCLR Rate
Significant public banks like Canara Bank and UCO Bank have hiked their Marginal Cost of Funds-based Lending Rate (MCLR) across various loan durations. As a result, customers are facing higher costs. This increase was a reaction to the Reserve Bank of India’s (RBI) choice to maintain the standard interest rate at 6.50% for the ninth time in a row.The Asset Liability Management Committee of UCO Bank recently approved a slight increase of 5 basis points in their lending rate for specific durations, effective from August 10, 2024. Likewise, Canara Bank is also planning to up its lending rate by the same margin for all terms, beginning August 12, 2024.

MCLR
In 2016, India’s Reserve Bank (RBI) set in motion the practice of using the marginal cost of lending rates as the foundation for banks to establish their own rates. It’s mandatory for banks to adhere to this standard set by the RBI, and not offer loans below this rate. As such, these banks determine their loan rates by adding their own defined edge to this rate.
Whenever there is an increase in this foundational rate (MCLR), it inevitably leads to a hike in the interest rates directly linked to it. This change causes borrowers to face escalated EMIs and spikes in the total cost of borrowing. The ripple effect of this increase can have noticeable impacts, such as leaving potential borrowers with less disposable income, halting fresh borrowing, and potentially causing hiccups in both personal financial planning and business investments.

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