Hours after the Reserve Bank of India hiked its benchmark policy repo rate by 25 basis points (bps) to 5.50% on 7 October, a number of banks are increasing their lending rates from Thursday, according to a PTI report.
Among banks who increased lending rates include the Punjab National Bank (PNB), Indian Bank, Bank of Baroda (BoB), Bank of India (BoI), Indian Overseas Bank (IOB) and Tamilnad Mercantile Bank, the report added.
RBI hikes repo rate by 25 bps
Notably, the central bank made its first rate increase in four years, since 2023, by hiking interest rates by 25 bps from 5.25% to 5.50% today and RBI Governor Sanjay Malhotra signalled that further hikes could follow as rising inflation, and a weakening currency prompt a policy pivot, it said.
The RBI’s six-member Monetary Policy Committee (MPC) voted unanimously to raise the repo rate, the first such increase since Malhotra took charge in December 2024. The rate hike was expected, but the central bank surprised watchers by shifting its stance towards “calibrated tightening”, effectively ruling out a rate cut in the near term, it added.
What does this mean for customers?
Notably, with banks increasing their lending rates, this is expected to make loans more expensive for customers.
On the private sector side, Tamilnad Mercantile Bank increased its Repo Linked Lending Rate (RLLR) to 8.5% from the existing 8.25%.
Other lenders are expected to announce an increase in their benchmark lending rate in line with RBI’s decision.
“The impact will be quicker for borrowers with floating-rate home loans linked to external benchmarks such as the repo rate. Existing borrowers should check their loan’s benchmark and reset frequency to understand when the rate hike could affect their repayments,” said Santosh Agarwal, CEO, Paisabazaar.
For borrowers whose tenure is extended, the monthly outgo may remain stable, but the longer repayment period can increase the overall interest cost.