Banks’ cut repo-linked lending rates by 50 bps, making home and vehicle loans cheaper

Banks such as Punjab National Bank (PNB), Bank of India (BoI), UCO Bank, Indian Bank, and Bank of Baroda (BoB) have slashed their repo linked lending rates (RLLRs) by 50 basis points, making home loans, vehicle loans, personal loans, and MSME (micro, small and medium enterprise) loans cheaper to that extent.

The cut in RLLRs by the aforementioned public sector banks’ follows the monetary policy committee voting by a 5-1 majority to reduce the repo rate by a steep 50 bps from 6 per cent to 5.50 per cent in its meeting on June 6th.

Whenever the repo is increased or decreased, Banks’ RLLRs go up or down to that extent.

Along with the repo rate cut, the central bank also slashed the cash reserve ratio (CRR) by 100 bps from 4 per cent to 3 per cent of banks’ deposits in four tranches, beginning September.

The CRR cut will ensure that banks not only have durable liquidity (total liquidity to be released due to the cut is ₹2.50 lakh crore), but the transmission of the repo rate cut into lending and deposit rates is faster.

PNB has decided to lower its RLLR from 8.85 per cent (including Business Strategic Premium/ BSP of 20 bps) to 8.35 per cent (including BSP of 20 bps) with effect from June 9th. However, the Bank left the Marginal Cost of Lending Rate (MCLR) and Base Rate unchanged.

BoI has lowered its RLLR to 8.35 per cent from 8.85 per cent with effect from June 6^th.

UCO Bank said it will revise its RLLR to 8.30 per cent from 8.80 per cent with effect from June 9^th. The Bank also decided to cut MCLR rates across the board by 10 bps, with the one-year MCLR getting lowered to 9 per cent (against 9.10 per cent earlier), with effect from June 10^th. MCLR serves as a benchmark for corporate loans.

Indian Bank has decided to cut its RLLR to 8.20 per cent from 8.70 per cent with effect from June 9^th. BoB has revised its RLLR lower to 8.15 per cent from 8.65 per cent with effect from June 7^th..

Karur Vysya Bank has revised its 6-month MCLR by 10 bps to 9.80 per cent (from 9.90 per cent) and one-year MCLR by 20 bps to 9.80 per cent (10 per cent) with effect from June 7^th .

Sachin Sachdeva, Vice President, Sector Head – Financial Sector Ratings, ICRA, observed thatthe steep cut of 50 bps in Repo rate is expected to sharply impact the net interest margins (NIMs) of the banks and Q2FY2025 is expected to be the weakest.