Winning Bizness Desk

Mumbai. Four public sector banks—Punjab National Bank (PNB), Bank of Baroda, UCO Bank, and Bank of India—have reduced their interest rates after the Reserve Bank of India (RBI) cut the repo rate by 0.50%. PNB has revised its home loan interest rate to start from 7.45%, down from the earlier 8%. Its vehicle loan rates now start from 7.80%. Other banks have not declared specific revised loan rates yet but have reduced their Repo Linked Lending Rate (RLLR) by 0.50%.

EMIs reduced by up to ₹1,139 on ₹30 lakh loans

As per PNB’s fresh rate cut, a home loan of ₹30 lakh over 20 years will now have a reduced EMI by ₹1,017 per month. For a 30-year loan of the same amount, the monthly savings would be ₹1,139. Both new and existing borrowers will benefit from this rate revision, provided their loan agreements are linked to RLLR.

Updated RLLRs across major public sector banks

The revised RLLRs of the banks are now as follows: Bank of India – 8.35% (effective from June 6), Bank of Baroda – 8.15% (effective from June 7), PNB – 8.35% (effective from June 9), and UCO Bank – 8.30% (also from June 9). Borrowers with loans linked to RLLR will see interest rate benefits passed on automatically.

Lower interest for new and floating rate borrowers

New borrowers seeking home or auto loans will now pay lower interest. For instance, Bank of Baroda’s home loan rate has dropped from 8% to around 7.50%. Existing borrowers with floating rate loans linked to RLLR will see either lower EMIs or a shorter loan tenure after their interest rate reset period. However, those with fixed-rate loans will not benefit unless they switch to floating rates.

Why repo rate and RLLR are connected

Banks determine loan interest rates based on RLLR, which is directly linked to the RBI’s repo rate. When the repo rate falls, RLLR and subsequently lending rates also reduce. Banks also add a margin over the repo rate to cover operational costs. For example, if the repo rate is 5.50% and the margin is 2.65%, the RLLR becomes 8.15%. To this, a credit risk premium is added, depending on the borrower’s profile.

What older borrowers can do to benefit

According to RBI rules, floating rate loans must be adjusted as per repo rate revisions. Hence, old borrowers linked to RLLR will automatically benefit. However, banks may increase the margin for new borrowers to maintain profitability. Borrowers with MCLR- or fixed-rate loans can request a shift to RLLR by paying a small fee. If done in the early loan years, switching can save significant interest over time.

7 Key Pointers:

• RBI cut the repo rate by 0.50%, bringing it down to 5.50%.
• PNB and 3 other PSU banks reduced their RLLRs by 0.50%.
• PNB home loan rate starts from 7.45%, vehicle loans from 7.80%.
• EMI on ₹30 lakh home loan down by ₹1,000–₹1,139 depending on tenure.
• Bank of Baroda’s home loan rate dropped to around 7.50%.
• Borrowers with RLLR-linked floating rate loans will benefit automatically.
• Fixed rate or MCLR borrowers can switch to RLLR by paying a fee.