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In a surprise move on Wednesday, the Reserve Bank of India (RBI) announced a hike in repo rates by 40 basis points (bps). So, with effect from May 4, RBI policy repo rate stands at 4.4%. 

Soon after the central bank's announcement, private sector lender ICICI Bank announced hike in its external benchmark lending rate.

ICICI Bank has hiked its external benchmark lending rate by 40 bps to 8.10%."ICICI Bank External Benchmark Lending Rate" (I-EBLR) is referenced to RBI Policy Repo Rate with a mark-up over Repo Rate. I-EBLR is 8.10% p.a.p.m. effective May 4, 2022," the bank mentioned on its site.

What is external benchmark lending rate?

External Benchmark Lending Rates (EBLR) are the lending rates set by the banks based on external benchmarks such as repo rate. This is the minimum interest rate at which commercial banks can lend. 

RBI introduced the Base Lending Rate (BLR) system in 2010, it moved to a Marginal Cost of Funds-based Lending Rate (MCLR) system in 2016, and in October 2019, it further introduced the External Benchmark-Linked Lending Rate (EBLR) regime.

Banks add Credit Risk Premium (CRP) over the EBLR and RLLR while giving any kind of loan including housing and auto loans.

SBI’s external benchmark based lending rate (EBLR) rate is 6.65%, while the repo-linked lending rate (RLLR) is 6.25 effective April 1.

EMIs to rise

Home, auto and other loan EMIs are likely to increase after RBI hiked its key interest rate by 40 bps in an effort to tame inflation that has remained stubbornly above target in recent months. The increase in repo rate - the rate at which RBI lends to commercial banks - to 4.40 per cent from a record low of 4 per cent is the first since August 2018.

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