Reference-based external lending rates have been increased by ICICI Bank and Punjab National Bank

After the RBI raised the benchmark interest rate by 0.50% on Friday, two major banks – ICICI Bank and PNB – raised their lending rates. To combat excessive inflation, the Reserve Bank of India (RBI) sharply increased the key repo rate, at which it lends short-term funds to banks, by 50 basis points, or 0.5%, to reach a three-year high of 5.40%. .

Retail price inflation has been above 6% for more than six consecutive months, remaining stubbornly high.

According to an announcement by ICICI Bank, the External Benchmark Lending Rate (I-EBLR) is a markup over the repo rate over the RBI policy repo rate.

The repo, or external benchmark, lending rate was also raised to 7.90% by the state-owned Punjab National Bank (PNB).

PNB said in a regulatory filing that “the repo-linked lending rate (RLLR) has been revised from 7.40% to 7.90% with effect from August 8, 2022”, in response to a hike in the repo rate by the RBI.

Ahead of the RBI policy rate announcement earlier this month, ICICI Bank also adjusted the marginal cost of funds based lending rate (MCLR) by 0.15% across all tenors.

As a result, from October 1, 2019, banks began to connect all new variable rate personal and personal loans (housing, auto), as well as micro and small business variable rate loans, to an index of external reference (repo) .

The RBI Repo Rate, Treasury Bill Based Yields published by Financial Benchmarks India Private Ltd (FBIL) or any other market benchmark interest rates reported by FBIL are all external benchmarks acceptable to banks.

The deviation from the external reference belongs to the lenders, who can also choose to extend these loans linked to the external reference to different categories of borrowers.

According to RBI instructions, the interest rate used as an external benchmark should be changed at least once every three months.

Shirlene J. Manley