The Reserve Bank of India’s 25-basis-point repo rate hike has quickly increased borrowing costs for customers after Punjab National Bank, Indian Bank, Bank of Baroda, Bank of India, Indian Overseas Bank and Tamilnad Mercantile Bank raised some lending rates within hours of the decision.
The new rates announced by the banks are effective from 8 October. The move is significant for households preparing to take home, car or education loans, as well as for businesses seeking fresh credit. The effect on existing borrowers will depend on the benchmark to which their loan is linked.
The RBI raised the repo rate by 25 basis points to 5.50% on Wednesday. The decision marked the first repo rate increase by the central bank in nearly four years. It was also the first rate hike since Sanjay Malhotra became RBI Governor in December 2024.
The Monetary Policy Committee, which has six members, unanimously supported the increase. The report attributed the decision to concerns over rising inflation and a weakening currency. It also said the RBI had indicated the possibility of further rate increases.
PNB, the country’s second-largest public sector bank, raised its repo-linked lending rate from 8.10% to 8.35%. The revised rate includes a bank spread of 0.35% and applies from 8 October, according to the bank. PNB did not change its marginal cost of funds-based lending rate or its base rate.
That distinction means the impact will not be uniform across all PNB borrowers. Customers whose loans are linked to the repo-linked lending rate may see a different effect from those whose loans are tied to MCLR or the base rate. The precise change in a borrower’s repayment burden will therefore depend on the loan agreement, benchmark, outstanding balance and remaining tenure.
For prospective homebuyers, the timing places renewed attention on the financing cost of urban housing. A change in the benchmark rate can affect the affordability calculation for buyers who depend on bank credit, although the size and timing of any change in their equated monthly instalment will vary by lender and loan structure. The same principle applies to car, education and business loans.
The six banks named in the report have raised some lending rates, but the available details identify the revised PNB repo-linked rate specifically. Customers of the other banks will need to check the applicable benchmark and effective rate communicated by their lender before calculating the impact on their repayments.
The RBI’s decision and the lenders’ rate revisions mark a shift from the recent period of stable or easing borrowing costs. The next relevant step for borrowers is the application of the revised rates to individual loan accounts and any further decision by the central bank on policy rates.
