Punjab National Bank increases lending rate by 5 bps across tenors; loan EMIs to become costlier

On Thursday, August 1, public lender Punjab National Bank raised the marginal cost of funds-based lending rate (MCLR) by 0.05 per cent, or 5 basis points, across tenors making most of the consumer loans costlier. The new rates are effective from August 1, 2024.

The benchmark one-year tenor MCLR, which is used to price most consumer loans including car and personal, will be 8.90 per cent, up from 8.85 per cent before, according to a regulatory filing by PNB.

The three-year MCLR stands at 9.20 per cent, up 5 basis points.

Among others, the rate of one-month, three-month, and six-month tenors will be in the range of 8.35-8.55 per cent.

The MCLR on overnight tenor will be 8.30 per cent against 8.25 per cent.

Bank of India

On Wednesday, another public sector lender Bank of India also announced an increase in MCLR by 5 basis points for one year tenor to 8.95 per cent. However, the rates were unchanged for the remaining tenors.

What is MCLR

MCLR is a methodology set by the Reserve Bank of India which is used by commercial banks to decide the loan interest rate. It has been implemented after demonetisation in India. This has made it easier for customers to take loans. When you take a loan from a bank, the minimum rate of interest charged by the bank is called the base rate. Banks cannot give loans to anyone at a rate lower than the base rate. Now banks are using MCLR instead of this base rate.

Loans like home loans have become cheaper since the implementation of MCLR. MCLR is calculated on the basis of marginal cost of funds, period premium, operating expenses, and cost of maintaining cash reserves ratio. Later, the loan is given on the basis of this calculation. It is cheaper than the base rate.

With agency inputs