BoB, Canara Bank hike MCLR on select tenors despite RBI's pause

Last Updated18/04/2023

State-run lenders Bank of Baroda and Canara Bank have increased their marginal cost of fund-based lending rate (MCLR) on select tenors even as the Reserve Bank of India (RBI) kept the repo rate unchanged in its recent policy.
However, the country’s largest lender State Bank of India (SBI) has kept its MCLR unchanged

Rate changes by Bank of Baroda (BOB)
It has hiked its MCLR by 5 basis points (bps) in select tenors
The one-year MCLR has been revised to 8.6 per cent from 8.55 per cent earlier.
The MCLRs on other tenors have been left unchanged by the lender
Rate changes by Canara Bank
It has hiked six-month and one-year MCLRs by 5 bps to 8.45 per cent and 8.65 per cent
It has not changed its MCLRs for other tenors.

It is the minimum interest rates below which banks cannot lend and was introduced in 2016
Banks calculate all operating costs as a percentage of marginal cost of funds for computing MCLR.
Factors including deposit rates, cost of maintaining the cash reserve ratio and marginal cost of funds are used to determine the MCLR rate.

It was introduced by RBI in 2019
It is linked to the repo rate to further increase the pace of monetary policy transmission

Currently, all the retail loans are linked to EBLR.
Corporates have the option to go for MCLR or EBLR-linked loans.
While any hike or cut in the repo rate gets immediately reflected in loans linked to EBLR, banks review interest rates under MCLR regime every month at a pre-announced date.
According to the recent Monetary Policy Report (MPR) for April 2023, Banks have revised upwards their EBLRs by 250 bps during May 2022- March 2023 in tandem with the increase in the policy repo rate.
The MCLR rose by 140 bps over the same period