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Canara Bank, one of the leading public sector lenders, increased its Marginal Cost of Funds Based Lending Rate (MCLR) across all tenors by 5 basis points. According to information from a stock exchange filing, the new MCLRs will go into effect on December 7, 2022. The minimal interest rate below which financial institutions cannot provide loans is referred to as MCLR (Marginal Cost of Funds Based Lending Rate).

On overnight to 1-month MCLR, the bank has hiked the interest rate by 5 bps from 7.25% to 7.30% and on 3 month MCLR, Canara Bank has hiked the interest rate by 5 bps from 7.55% to 7.60%. Canara Bank has hiked 6-month MCLR by 5 bps from 8.00% to 8.05% and the bank has also hiked 1-year MCLR by 5 bps from 8.10% to 8.15%.

“The Exchanges are hereby informed that the Marginal Cost of Funds Based Lending Rate (MCLR) of the bank with effect from 07.12.2022," said Canara Bank in a stock exchange filing.

Canara Bank MCLR
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Canara Bank MCLR (bseindia.com)

As a result, the borrowers now have to pay higher EMIs for loans that are tied to the MCLR. The increase in MCLR will affect existing borrowers' EMIs when their respective loan reset date rolls near for loans that are MCLR-linked. The Reserve Bank of India (RBI) may announce another repo rate hike in its next bi-monthly policy review on December 7 at the conclusion of the three-day MPC meeting because inflation is still above the 6% target level. Under the MCLR mechanism banks typically modify their interest rates as soon as the repo rate alters, indicating that MCLR rate hike of Canara Bank will hike floating rate loans for the borrowers. It follows that both the new and existing borrowers will have to pay more to maintain their auto, home, vehicle, and personal loans, which will cause their equated monthly installments (EMIs) to increase on the loan reset date.

To reduce domestic retail inflation, which has been over the RBI's upper tolerance level for more than three quarters, the central bank had already increased the key policy rate by 190 basis points since May to 5.9%. Since retail inflation in October was 6.77 percent compared to 7.41 percent in the previous month and is still above the RBI's upper tolerance range, experts are anticipating the announcement of the fifth rate rise tomorrow.

ABOUT THE AUTHOR

Vipul Das

Vipul Das is a Digital Business Content Producer at Livemint. He previously worked for Goodreturns.in (OneIndia News) and has over 5 years of expertise in the finance and business sector. Stocks, mutual funds, personal finance, tax, and banking are among his specialties, and he is a professional in industry research and business reporting. He received his bachelor's degree from Dr. CV Raman University and also have completed Diploma in Journalism and Mass Communication (DJMC).
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