2 big government banks of the country have made loans cheaper, home loan EMI will decrease
PNB and Bank of India Cut MCLR, Bringing Relief on Home Loan EMIs
Two of the country’s leading public sector banks, Punjab National Bank (PNB) and Bank of India (BoI), have reduced their lending rates, giving some relief to borrowers struggling with rising EMIs. Both banks announced a cut in their Marginal Cost of Funds Based Lending Rates (MCLR) effective from September 1, 2025, which directly impacts the cost of loans linked to this benchmark.
Why This Matters for Borrowers
MCLR is a benchmark rate used by banks to determine the interest on loans such as home loans, auto loans, and personal loans. When MCLR falls, the EMI (Equated Monthly Instalment) of existing floating-rate loans linked to it also comes down. This means customers tied to the MCLR system will now see their monthly repayment burden ease slightly.
The timing of this rate reduction is significant. In its August 2025 monetary policy review, the Reserve Bank of India (RBI) had kept the repo rate unchanged at 5.5%. While the central bank held back from easing policy rates, individual banks have decided to trim their MCLR to stay competitive and attract more customers.
New Rates Announced by PNB
PNB has cut rates across multiple tenures:
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Overnight MCLR: Reduced from 8.15% to 8%
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1-Month MCLR: Reduced from 8.30% to 8.25%
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3-Month MCLR: Reduced from 8.50% to 8.45%
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6-Month MCLR: Reduced from 8.70% to 8.65%
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1-Year MCLR: Reduced from 8.85% to 8.80%
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3-Year MCLR: Reduced from 9.15% to 9.10%
The one-year MCLR is particularly important because most loans, including home loans, are usually priced on this benchmark.
New Rates Announced by Bank of India
Bank of India has also revised its MCLR as follows:
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Overnight MCLR: Unchanged at 7.95%
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1-Month MCLR: Reduced from 8.40% to 8.30%
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3-Month MCLR: Reduced from 8.55% to 8.45%
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6-Month MCLR: Reduced from 8.80% to 8.70%
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1-Year MCLR: Reduced from 8.90% to 8.85%
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3-Year MCLR: Reduced from 9.15% to 9%
Who Benefits from the Cut?
The reduction will bring immediate relief to borrowers with existing loans linked to MCLR. Their EMIs will come down marginally, reducing the overall repayment burden. This applies mainly to older loans, as new floating-rate loans are now typically linked to the External Benchmark Lending Rate (EBLR), which is tied to RBI’s repo rate or other external benchmarks.
However, borrowers still on MCLR have the option to switch to EBLR-based loans if they wish. While EBLR loans are more transparent and directly linked to RBI’s policy moves, MCLR-linked loans still account for a large portion of existing bank loan portfolios.
Why Banks Are Cutting Rates
The move highlights the ongoing competition among lenders. With the festive season approaching, banks are keen to attract more home loan, car loan, and personal loan customers. Lower MCLR makes borrowing more attractive at a time when consumers are considering big-ticket purchases and investments.
Financial experts note that even though the rate cuts are small—usually just 5 to 10 basis points—they make a noticeable difference in long-term loans like housing loans, where repayment spans 15 to 20 years. For example, even a 0.05% reduction in interest rate can save borrowers thousands of rupees over the loan tenure.
Bottom Line
The decision by PNB and Bank of India to lower MCLR is a welcome relief for borrowers paying EMIs on MCLR-linked loans. Although the benefit may be modest, it signals that banks are willing to share some relief with customers despite the RBI maintaining its repo rate. Borrowers are advised to check their loan agreements to see if they can benefit from the new rates, and also explore the option of moving from MCLR to EBLR-based loans for potentially better long-term savings.
