The Reserve Bank of India’s 25-basis-point repo rate increase has already begun raising borrowing costs, with Punjab National Bank, Indian Bank, Bank of Baroda, Bank of India, Indian Overseas Bank and Tamilnad Mercantile Bank revising some lending rates within hours of the decision, according to Aaj Tak Business. Several of the revised rates took effect on October 8.
The RBI raised the repo rate to 5.50% on Wednesday. The increase is the central bank’s first repo rate hike in nearly four years, according to the report. The six-member Monetary Policy Committee approved the decision unanimously.
The move is significant for households planning to take home loans, as well as existing borrowers whose loans are linked to external benchmarks or other floating-rate mechanisms. However, the impact will not be identical for every customer because loan pricing depends on the benchmark, the bank’s spread, the loan agreement and the borrower’s outstanding balance.
Punjab National Bank, the country’s second-largest public sector bank, increased its repo-linked lending rate from 8.10% to 8.35%. The revised rate includes a 0.35% bank spread and is effective from October 8, the report said. PNB did not change its marginal cost of funds-based lending rate, or MCLR, or its base rate.
That distinction means the RBI’s action will not affect all PNB borrowers in the same way. Customers whose loans are linked to the bank’s repo-linked lending rate may see their interest costs change, while borrowers tied to MCLR or the base rate may not face an immediate revision based on the information available in the report.
For homebuyers, the increase comes at a point when the interest rate attached to a loan remains a key determinant of monthly affordability. A higher lending rate can raise the monthly repayment or extend the repayment period, depending on how the bank recalculates the loan. The exact effect cannot be established without the loan amount, tenure, existing interest rate and benchmark applicable to the borrower.
The rate decision was taken against the backdrop of rising inflation and a weakening currency, according to Aaj Tak Business. The report also said that the RBI signalled the possibility of further rate increases. Any additional changes would depend on subsequent monetary policy decisions and how banks transmit them to different categories of borrowers.
Sanjay Malhotra became RBI governor in December 2024, and the latest decision marks the first repo rate increase during his tenure, the report said. The increase had been anticipated before the committee meeting.
The immediate next step for borrowers is to check the benchmark and reset terms in their loan documents, while banks continue to apply their revised lending rates from the dates announced. The supplied report does not provide the revised rates for all six banks or a uniform EMI calculation across loan categories.
