Several banks have raised their repo rate-linked lending rates (RLLR) after the Reserve Bank of India (RBI) on Friday raised the repo rate by 50 basis points (bps) to 5.40%. Public sector banks Bank of Baroda, Punjab National Bank, Union Bank of India and private sector lender ICICI Bank on Saturday raised their RLLRs.
Post the increase in RLLR, Bank of Baroda’s RLLR stands at 7.95%, with 5.40% as RBI repo rate and a mark-up of 2.55%. The new RLLR will be effective from Saturday. Punjab National Bank has increased its RLLR from 7.40% to 7.90%, while Bank of India’s RLLR stands at 8.25%, effective Friday.
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Bank of Maharashtra’s RLLR will stand at 7.70% from August 10 and Union Bank of India’s external benchmarked lending rates (EBLR) stand at 7.70%, effective August 11. ICICI Bank’s EBLR, which is pegged to repo rate, stands at 9.10%.
RLLR is linked to or is based on the repo rate and is revised every time the RBI changes policy rates. With RBI moving into a rising rate cycle, banks have also started increasing their lending rates, both externally benchmarked and marginal cost of funds-based (MCLR). Since April, the RBI has increased the repo rate by 140 bps in three tranches.
As the transmission of monetary policy takes place more effectively under the EBLR regime, banks are opting to switch to the system. As per RBI data, the share of loans under the EBLR-based system, for all banks, has increased to 39.2% in December 2021 from 28.6% in March.
The immediate increase in RLLR or EBLR by banks and a comparatively delayed increase in deposit rates augurs well for their margins. In addition to the RLLR, banks are also increasing their MCLR. ICICI Bank, Punjab National Bank, Yes Bank and Bank of India also raised their MCLR by 10-15 bps before the RBI policy decision. While banks revise RLLR whenever there is a change in repo rate, MCLR is revised by lenders every month.
Other lenders such as Housing Development Finance Corporation (HDFC) and LIC Housing Finance have also increased their retail prime lending rate (RPLR) on home loans.