Several Indian banks have recently reduced their MCLR (Marginal Cost of Funds-based Lending Rate) across various tenors, signaling a potential easing in borrowing costs for home loans, personal loans, and other floating-rate credit products. Notable banks making cuts include Bank of Baroda, Indian Overseas Bank, and IDBI Bank, benefiting borrowers with lower interest outflows.
What is MCLR?
MCLR is the benchmark lending rate used by banks to price loans. Introduced by the RBI in April 2016, it determines the minimum interest rate a bank can offer on loans. MCLR is reviewed monthly and reflects the bank’s cost of funds, operating expenses, and tenor premium.
Recent Cuts by Banks
Bank of Baroda: Reduced MCLR for 1-year and 3-year tenors by 5–10 basis points.
Indian Overseas Bank: Cut MCLR across multiple tenors, making home and personal loans cheaper for borrowers.
IDBI Bank: Announced reductions in short- and long-term MCLRs to attract new borrowers and reduce existing loan burdens.
These cuts indicate competitive lending, and borrowers with floating-rate loans linked to MCLR may see lower EMIs in the coming months.
Impact on Borrowers
Home Loan Borrowers: EMIs may reduce automatically if linked to revised MCLR.
Business Loans & Personal Loans: Lower interest outgo improves cash flow for SMEs and individuals.
Floating-Rate Advantage: MCLR-based loans adjust monthly, giving borrowers the benefit of timely reductions in lending rates.
Things to Keep in Mind
Check Your Loan Tenor: Ensure your loan is linked to the bank’s MCLR; otherwise, cuts won’t affect your EMI.
Spread Over MCLR: Some loans carry a fixed spread over MCLR — your actual rate = MCLR + spread.
Other Charges: Processing fees, prepayment penalties, or floating-rate adjustments may affect total cost.
Conclusion
The recent MCLR cuts by Bank of Baroda, Indian Overseas Bank, and IDBI are a welcome relief for borrowers with floating-rate loans. Homeowners, SMEs, and individual borrowers can benefit from lower EMIs, but should always review the full terms of their loans for maximum advantage.
Frequently Asked Questions (FAQ)
1. What is MCLR?
MCLR (Marginal Cost of Funds-based Lending Rate) is the minimum interest rate a bank can charge on loans, updated monthly based on its cost of funds and other factors.
2. Which banks have recently cut MCLR?
Bank of Baroda, Indian Overseas Bank (IOB), and IDBI Bank have announced cuts across various tenors.
3. Who benefits from MCLR cuts?
Borrowers with floating-rate loans linked to MCLR, such as home loans, personal loans, and business loans, benefit through lower EMIs.
4. How is my actual loan rate calculated?
It’s generally MCLR + spread, where the spread is fixed by the bank at loan sanction.
5. Do MCLR cuts affect fixed-rate loans?
No. Fixed-rate loans are unaffected, as their interest rates remain constant for the loan tenure.
Published on : 15th September
Published by : SMITA
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