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Banks (Finance)

Banks Revising Lending Rates After RBI Rate Cut: Old Borrowers to Benefit More Than New Ones

Strategic Insights

— 1 min read

Mumbai: The RBI's recent 50 basis point repo rate cut has led to public sector lenders revising their lending rates. However, a twist in this development is that existing borrowers are likely to benefit more than new ones, as banks adjust the spreads on home loans to protect their margins. This adjustment is expected to result in old borrowers enjoying lower interest rates compared to those taking out new loans.

Key Takeaways:

  • Public sector lenders, including Bank of Baroda, Punjab National Bank, and Bank of India, have reduced their repo-linked lending rates by 50 basis points.
  • Existing borrowers will benefit from the automatic reduction in rates, as floating-rate loans are reset according to the benchmark repo rate.
  • New borrowers, however, may not get the full benefit as banks adjust the spread they charge over the repo rate to preserve profitability.
  • In the case of Bank of Baroda, home loan rates for new borrowers will start at 8% after the revision.
  • Old borrowers may see interest rates as low as 7.85% for loans up to Rs 30 lakh from lenders like Bank of India, Bank of Maharashtra, Central Bank of India, and Union Bank of India.
  • In the FD market, rates are also expected to decrease as banks lower returns on fixed deposits to preserve profitability.
  • Private lenders like HDFC Bank and ICICI Bank may charge 6.85% for tenures of 15 to 24 months.

Statistics:

  • 50 basis point reduction in the RBI's repo rate.
  • 50 basis point reduction in Bank of Baroda's repo-linked lending rate (RLLR), now standing at 8.15%.
  • 50 basis point reduction in Punjab National Bank's RLLR to 8.35%, effective June 9.
  • 51 basis point reduction in UCO Bank's RLLR to 8.30% from June 9.
  • 10 basis point reduction in HDFC Bank's MCLR across tenure, starting June 7.

Sources:

  • Times News Network
  • Bank of Baroda
  • Punjab National Bank
  • Bank of India
  • UCO Bank
  • HDFC Bank
  • RBI norms ( floating-rate loans must be reset in line with the benchmark repo rate)

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