EMIs fall as state-run banks pass on rate-cut bonanza to existing borrowers

Many large public sector banks such as Bank of Baroda, Punjab National Bank, Bank of India, and Uco Bank have reduced their repo-linked lending rates by a full 50 bps to their existing borrowers in response to the Reserve Bank’s unconventional 50 bps reduction in the repo rate to 5.5% last Friday.

- 

Also slashing the cash reserve ratio (CRR) by a steep 100 bps to 3% in a staggered manner between September and end-November which will help them protect their margins which have been under pressure since long due to higher pricing of deposits.

The 50 bps repo cut announced on June 6 is the steepest since May 2020 in response to the Covid pandemic when the RBI slashed it by a steeper 75 bps, while the 100 bps CRR is historic. The CRR reduction will release Rs 2.5 trillion in lendable money to banks, which means they can lend 10x more or worth Rs 25 trillion. The CRR will be reduced in four equal instalments of 25 bps each beginning September 1 and ending November 29. This will also protect banks’ margins, which Crisil considers to boost their NIMs by 10-15 bps.

Leading the rate-reduction bandwagon are major public sector banks such as Bank of Baroda, Punjab National Bank, Bank of India, and Uco Bank which have reduced their repo-linked lending rates (RLLR) by a full 50 bps. This means that existing home and auto loan borrowers would see their EMIs fall considerably or their loan tenor coming down. Typically for a Rs 50 lakh loan, a 25 bps reduction in interest rate means, EMI coming down by a month. In the present case, it means the loan tenor is down by two EMIs.

Bank of Baroda has cut its RLLR from 8.65% to 8.15% effective June 7, while PNB’s rate will be down from 8.85% to 8.35%, starting June 9, and Bank of India has lowered the rates from 8.85% to 8.35% effective June 6 itself. Uco Bank has reduced its RLLR from 8.80% to 8.30% and has also cut its MCLR by 10 bps across all tenors.