Mumbai, April 11

Bank of Baroda (BoB) will raise its Marginal Cost of Funds Based Lending Rate (MCLR) by 5 basis points across the board with effect from April 12, 2022.

With this revision, the six months and one-year MCLR will go up to 7.20 per cent (from 7.15 per cent now) and 7.35 per cent (7.30 per cent), respectively.

The increase in MCLR comes in the backdrop of a pick-up in credit. According to RBI’s latest monthly bulletin, with credit offtake picking up, some Scheduled Commercial Banks have raised interest rates on term deposits. 

RBI had introduced MCLR with effect from. April 1, 2016, whereby all floating rate rupee loans sanctioned and renewed by banks from this date were to be priced with reference to this rate.

Later, the central bank asked banks to link all new floating rate personal or retail loans and floating rate loans to Micro and Small Enterprises to external benchmarks with effect from October 1, 2019.

Subsequently, RBI directed banks to link all new floating rate loans to medium enterprises to external benchmarks with effect from April 1, 2020.

External benchmarks include the policy repo rate; 3-Months Treasury Bill yield; 6-Months Treasury Bill yield; and any other benchmark market interest rate published by Financial Benchmarks India Private Ltd (FBIL).

Further, banks are free to offer such external benchmark linked loans to other types of borrowers as well.

The proportion of floating rate loans linked to the external benchmarks rose further to 39.2 per cent in December 2021 from 28.6 per cent in March 2021 and 9.3 per cent in March 2020, which would strengthen transmission further going forward, according to RBI’s latest monetary policy report.

Correspondingly, the share of MCLR-linked loans has come down, although these still have the largest share (53.1 per cent in December 2021).

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