Major Indian Banks Hike Lending Rates by 25 Basis Points Following RBI Repo Rate Increase to 5.50%

Following the Reserve Bank of India's (RBI) decision to increase the benchmark policy repo rate by 25 basis points to 5.50%, several major Indian commercial banks have moved quickly to adjust their lending rates higher. The revised rates took effect on October 8, ushering in higher borrowing costs across external benchmark-linked retail and MSME credit facilities.

The central bank's six-member Monetary Policy Committee (MPC), headed by RBI Governor Sanjay Malhotra, voted unanimously to raise the benchmark repo rate from 5.25% to 5.50%. Marking the first policy rate hike in nearly four years, the MPC also surprised markets by officially shifting its stance towards "calibrated tightening" in response to domestic inflation concerns and currency pressures.

PSU Lenders Lead Rate Revision

Because external benchmark-linked lending rates (EBLR/RLLR) are tied directly to the RBI's repo rate, public sector lenders moved rapidly to file regulatory disclosures outlining upward revisions:

Key Bank Revisions:

• Punjab National Bank (PNB): The country's second-largest public sector bank raised its Repo Linked Lending Rate (RLLR) from 8.10% to 8.35%, which includes a Business Strategic Premium (BSP) of 0.35%. PNB confirmed that its Marginal Cost of Funds-based Lending Rate (MCLR) and Base Rate remain unchanged.
• Bank of Baroda (BoB): The lender revised its Repo Based Lending Rate (RBLR) upward by 25 basis points, moving from 7.90% to 8.15%.
• Indian Bank: The Chennai-headquartered lender increased its RBLR from 7.95% to 8.20%.
• Bank of India (BoI): BoI raised its benchmark RBLR to 8.35% with effect from October 8.
• Indian Overseas Bank (IOB): IOB similarly revised its repo-linked rate upwards to 8.35%.
• Tamilnad Mercantile Bank: In the private banking space, Tamilnad Mercantile Bank adjusted its RLLR from 8.25% to 8.50%.

Impact on Retail Borrowers and Investors

Under RBI guidelines, floating-rate retail loans—such as home loans, personal loans, and auto loans—as well as MSME loans sanctioned by scheduled commercial banks must be pegged to an external benchmark, primarily the repo rate. Consequently, existing borrowers under these regimes will experience an immediate transmission of the 25-basis-point increase, resulting in either larger monthly equated monthly installments (EMIs) or extended repayment tenures.

For equity investors tracking the financial sector, the swift repricing of external benchmark assets is expected to support near-term loan yields. However, banking sector margins may face cross-currents as lenders adjust fixed deposit rates upward to compete for liquidity in a tighter monetary policy environment.

Tags: RBI Punjab National Bank Bank of Baroda Indian Bank Bank of India Indian Overseas Bank