In a move to stimulate credit growth and bolster the economy, Bank of Baroda and HDFC Bank have reduced their lending rates following the Reserve Bank of India’s unexpected 50 basis points cut in the policy repo rate. The state-run Bank of Baroda has slashed its Repo Linked Lending Rate (RLLR) by 50 basis points, fully mirroring the central bank’s rate cut. Private sector lender HDFC Bank has lowered its Marginal Cost of Funds-based Lending Rates (MCLR) by 10 basis points across tenures. These reductions are expected to make borrowing cheaper for a range of retail and business customers.
BoB Fully Reflects RBI’s Repo Rate Cut
State-owned Bank of Baroda announced on Sunday that it has reduced its benchmark RLLR by 50 basis points to 8.15 per cent, effective June 7. This rate cut follows the RBI’s decision to lower the policy repo rate by 50 basis points to 5.5 per cent, a move aimed at infusing momentum into the economy through cheaper credit.
BoB’s swift move to adjust its RLLR demonstrates a full transmission of the monetary policy easing, enabling borrowers whose loans are linked to the repo rate to benefit immediately.
HDFC Bank Trims MCLR Across Tenures
Meanwhile, HDFC Bank, India’s largest private lender, has revised its MCLR across various loan maturities by 10 basis points, also effective June 7. Overnight and one-month MCLR have been reduced to 8.90 per cent, while the three-month rate now stands at 8.95 per cent. The six-month and one-year MCLR have been adjusted to 9.05 per cent, with the two-year and three-year rates dropping to 9.10 per cent.
The MCLR cuts by HDFC Bank will bring relief to borrowers with loans linked to this benchmark, lowering their interest costs and potentially boosting credit demand.
RBI’s Aggressive Policy Action
The rate cuts by the banks follow the RBI’s larger-than-expected 50 basis points reduction in the repo rate and an unprecedented 100 basis points cut in the cash reserve ratio (CRR) to 3 per cent. This CRR cut has infused Rs. 2.5 lakh crore of additional liquidity into the banking system, further supporting credit growth.
This latest reduction marks a cumulative 100 basis points cut in the repo rate by the RBI in 2025, following earlier 25 basis point reductions in February and April. The monetary policy committee, headed by Governor Sanjay Malhotra, voted five to one in favor of the sharp repo rate cut in its June policy review.
Outlook for Credit and Economic Recovery
The prompt action by major lenders to lower lending rates is expected to spur both retail and business borrowing, aiding the recovery of India’s economy. The additional liquidity from the CRR cut, coupled with the repo rate reduction, is designed to accelerate credit growth, boost consumption, and support investment amid ongoing global uncertainties.
As Indian banks recalibrate their lending strategies, the stage is set for an economic environment where credit becomes more affordable, potentially ushering in a fresh cycle of growth and development.
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