Bank of Baroda, Canara Bank Raise MCLR: Will Home Loan and Personal Loan EMIs Become Costlier?

Bank of Baroda and Canara Bank have increased their Marginal Cost of Funds-Based Lending Rate (MCLR) on select loan tenures, effective August 12, raising concerns among borrowers about whether home loan and personal loan EMIs could become more expensive.

While the hikes are relatively small—ranging between 5 and 10 basis points (bps)—their impact will depend on whether a borrower's loan is linked to the MCLR benchmark and when the next interest rate reset is due.

Bank of Baroda revises MCLR

Bank of Baroda has increased its three-month MCLR by 10 basis points, taking it from 8.20% to 8.30%.

The lender has kept all other MCLR-linked lending rates unchanged.

Canara Bank raises lending rates across tenures

Canara Bank has revised its MCLR upward by 5 basis points across most loan tenures.

The revised rates are:

• One-month MCLR: 8.05% (up from 8.00%)
• Three-month MCLR: 8.30% (up from 8.25%)
• Six-month MCLR: Increased by 5 bps
• One-year MCLR: Increased by 5 bps
• Two-year MCLR: Increased by 5 bps
• Three-year MCLR: Increased by 5 bps

The bank has, however, kept its overnight MCLR unchanged at 7.95%.

What is MCLR?

The Marginal Cost of Funds-Based Lending Rate (MCLR) is an internal benchmark used by banks to determine the minimum interest rate for various loans. Introduced under the Reserve Bank of India (RBI) framework, MCLR reflects the cost at which banks raise funds.

Banks generally price loans above the applicable MCLR, making it an important benchmark for several home loans, personal loans and business loans.

Why have banks increased MCLR despite no RBI repo rate hike?

The latest revision comes shortly after the Reserve Bank of India (RBI) decided to keep the repo rate unchanged at 5.25% during its August monetary policy meeting.

Since the repo rate remained unchanged, the latest MCLR revisions are not driven by RBI policy.

Instead, banks revise MCLR based on their own funding costs, including deposit rates and the overall cost of raising money. When funding costs increase, banks often raise lending rates to protect profitability.

Will your home loan EMI increase?

Not every borrower will see an immediate rise in monthly EMIs.

The impact will mainly be felt by customers whose loans are linked to the MCLR benchmark and whose interest rate reset date falls after the revised rates become effective.

Depending on the loan agreement, banks may either:

• Increase the monthly EMI, or
• Keep the EMI unchanged while extending the repayment tenure.

Although a 5–10 basis point increase appears modest, even a small rise in interest rates can increase the total interest paid over the tenure of long-term loans such as home loans.

Borrowers should check whether their loan is linked to MCLR or an external benchmark rate, as not all floating-rate loans are affected by MCLR revisions.

Why are banks raising lending rates?

For lenders, revising MCLR is primarily aimed at maintaining profitability.

When banks pay higher interest on deposits or incur increased funding costs, raising lending rates helps preserve their net interest margins.

However, banks must also ensure that borrowing remains affordable. Excessively high lending rates could discourage customers from taking fresh loans, affecting credit growth.

The latest revisions suggest banks are attempting to strike a balance between protecting margins and sustaining loan demand amid changing funding costs.