# Major Lenders Hike Borrowing Rates Following Central Bank Policy Tightening

> Several leading commercial lenders, including Punjab National Bank and Bank of Baroda, have raised their external benchmark lending rates by 0.25 percent following the RBI repo rate hike.

**Type:** article · **Category:** Business · **Published:** 2026-10-08 · **Source:** TrendKia
**Canonical:** https://trendkia.com/en/business/rijarva-bainka-ke-phaisale-ke-bada-pnb-aura-bank-of-baroda-sameta-kai-bare-bainkon-ne-karja-ki-daren-barhain-44900 · **Language:** English
**Tags:** Repo Rate, Punjab National Bank, Bank of Baroda, Loan Interest Rates, RBI, Home Loan EMI

Borrowers across the country are facing immediate upward pressure on their monthly loan repayments after commercial banks moved swiftly to reflect the central bank's latest monetary tightening. Following the Reserve Bank of India's decision on Wednesday to lift the policy repo rate by 0.25 percent, major state-owned and private financial institutions announced revisions to their benchmark lending rates. Lenders such as Punjab National Bank, Bank of Baroda, Indian Bank, Bank of India, and Indian Overseas Bank have raised their external benchmark-linked rates by up to 0.25 percent, making retail and commercial credit costlier across product categories.

## Benchmark Policy Rate Moves to 5.50 Percent
In its monetary policy decision on Wednesday, the Reserve Bank of India raised the benchmark repo rate by 0.25 percent, pushing it to 5.50 percent. This adjustment marks the first policy rate hike enacted by the central bank in roughly four years. The tightening measures come against the backdrop of persistent inflationary pressures and depreciation in the domestic currency, with the monetary authority signaling that further rate increases may follow if macroeconomic conditions demand them. Because the repo rate represents the interest charged by the central bank when providing funds to commercial lenders, an increase immediately inflates the cost of funds across the financial sector, prompting banks to transmit the hike to end borrowers.

## Punjab National Bank Revises Benchmark RLLR
Punjab National Bank, the country's second-largest public sector lender, notified stock exchanges regarding the revision of its retail lending parameters. In response to the central bank's stance, PNB increased its Repo Linked Lending Rate, or RLLR, from 8.10 percent to 8.35 percent, with the adjusted rates taking effect on October 8. However, the lender clarified that its Marginal Cost of Funds based Lending Rate, commonly known as MCLR, as well as its traditional base rate, have been left unchanged for the time being. This means borrowers whose loan contracts are strictly anchored to the external repo benchmark will bear the immediate impact of higher interest outgo.

## Adjustments Across Public Sector Peers
Other major public sector financial institutions rolled out identical revisions to align with the revised monetary framework. Chennai-headquartered Indian Bank increased its Repo Benchmark Lending Rate, or RBLR, from 7.95 percent to 8.20 percent, effective October 8. Similarly, Bank of Baroda lifted its repo-anchored lending rate from 7.90 percent to 8.15 percent.

Bank of India and Indian Overseas Bank followed suit by raising their RBLR figures to 8.35 percent, with both lenders making the new rates applicable from October 8. The simultaneous moves demonstrate rapid monetary policy transmission across state-backed banking channels, directly influencing retail credit terms.

## Private Lenders Follow Monetary Transmission
The upward rate cycle has not been limited to government-run lenders. Private sector player Tamilnad Mercantile Bank announced an increase in its repo-linked lending rate from 8.25 percent to 8.50 percent. Analysts expect other private commercial banks, non-banking financial companies, and housing finance firms to follow in the coming days by recalibrating their benchmark rates by 0.25 percent, driving broad-based increases in interest obligations for consumers and businesses alike.

## What this means for you
The 0.25 percent hike in benchmark lending rates will directly increase monthly installments for all floating-rate retail borrowers.

- **Impact on Borrowers:** Floating-rate home, auto, and personal loans tied to external benchmarks will immediately become 0.25 percent costlier. Borrowers must either accept higher monthly EMI payouts or opt to extend their overall repayment tenure.
- **New Loan Applicants:** Customers applying for retail credit from October 8 onward will face higher interest rate slabs across these lenders. This may slightly constrain borrowing capacity because debt servicing costs relative to income will rise.
- **MCLR Borrowers Protected:** Borrowers whose legacy contracts remain tied to MCLR or the older base rate see no immediate rate adjustment. Their borrowing terms remain unaffected until lenders formally revise internal cost benchmarks.
- **Funding Cost Adjustments:** Higher interbank borrowing costs will compel lenders to protect margins across portfolios. Consequently, commercial banks may also incrementally raise interest rates on fixed deposits in the near term.

## Why this happened
The upward revision in lending rates was triggered by the Reserve Bank of India raising its benchmark repo rate to curb inflation and support the currency.

- **Central Bank Policy Hike:** The RBI lifted the repo rate by 0.25 percent to 5.50 percent to counter rising inflation and stem the decline in the rupee. This development instantly raised borrowing costs for commercial lenders tapping central bank funds.
- **External Benchmark Regulations:** Under regulatory guidelines, floating retail loans are anchored directly to external benchmarks such as the repo rate. Lenders are required to adjust their RLLR and RBLR formulas as soon as the baseline policy rate moves.
- **First Hike in Four Years:** This move represents the central bank's first rate increase in roughly four years, signaling a shift toward monetary tightening. Lenders responded immediately by applying the higher rates effective October 8.

## Questions & Answers

### 1. How much did the Reserve Bank of India hike the repo rate?
The RBI increased the repo rate by 0.25 percent, taking it to 5.50 percent.

### 2. What is the revised RLLR for Punjab National Bank?
PNB raised its Repo Linked Lending Rate from 8.10 percent to 8.35 percent, effective October 8.

### 3. What are the new rates for Bank of Baroda and Indian Bank?
Bank of Baroda increased its benchmark rate to 8.15 percent, while Indian Bank revised its RBLR to 8.20 percent.

### 4. Are MCLR-linked loans affected at Punjab National Bank?
No, PNB confirmed that its Marginal Cost of Funds based Lending Rate and base rate remain unchanged.

### 5. What revision did Tamilnad Mercantile Bank announce?
Tamilnad Mercantile Bank increased its repo-linked lending rate from 8.25 percent to 8.50 percent.

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