Bank of Baroda Cuts Loan Rates Ahead of Festive Season, Homebuyers and Borrowers to Get EMI Relief

Ahead of the upcoming festive season, Bank of Baroda (BoB) has announced a reduction in its lending rates, giving a much-needed relief to retail borrowers. The state-owned lender has revised its Marginal Cost of Funds-Based Lending Rate (MCLR), which will directly impact the cost of loans such as home loans, personal loans, and auto loans.

The changes, announced on Wednesday, will come into effect from September 12, 2025.

Key Changes in MCLR

According to the bank’s statement, the overnight MCLR has been reduced by 10 basis points, bringing it down to 7.85%. Similarly, the three-month MCLR has been cut by 15 basis points, and now stands at 8.20%.

However, other tenors remain unchanged:

• One-month MCLR: 7.95% (unchanged)

• Six-month MCLR: 8.65% (unchanged)

• One-year MCLR: 8.80% (unchanged)

The one-year MCLR is the most crucial benchmark, as it determines the interest rate for most home and auto loans. Since this rate has not been revised, existing borrowers may see limited relief, though those with short-term or floating-rate loans will benefit more immediately.

What is MCLR and Why Does It Matter?

The Marginal Cost of Funds-Based Lending Rate (MCLR) is the minimum interest rate below which banks are not permitted to lend, except in specific cases allowed by the Reserve Bank of India (RBI). Introduced in April 2016, it replaced the earlier base rate system to ensure that RBI’s policy rate changes are passed on to borrowers more effectively and quickly.

MCLR is calculated on multiple factors such as:

• The cost of funds (deposit mobilization costs)

• Operating expenses of the bank

• Cash Reserve Ratio (CRR) costs

• Loan tenure

• Risk premium associated with the borrower

Therefore, whenever MCLR changes, borrowers with floating-rate loans see a direct impact on their EMIs. A reduction means cheaper loans, while an increase leads to higher repayment obligations.

Impact on Customers

The latest rate cut by Bank of Baroda will help bring down EMIs, especially for those with short-term loans or floating-rate personal and business loans. For home loan and auto loan borrowers, the unchanged one-year MCLR means relief may be limited in the immediate term, but competition among banks could lead to further adjustments.

For new borrowers, this move signals a favorable lending environment, especially during the festive season when demand for credit typically rises. Traditionally, banks launch special festive offers on loans, and BoB’s rate cut sets the stage for more attractive borrowing conditions.

Festive Season Credit Push

The decision comes at a time when banks across India are gearing up for increased consumer spending ahead of festivals and the wedding season. From housing loans to personal credit, demand generally spikes during this period as families invest in homes, vehicles, and consumer durables.

By reducing borrowing costs, Bank of Baroda aims to attract more customers and encourage loan growth, while easing the financial burden on existing borrowers.

The Bottom Line

Bank of Baroda’s MCLR cut ahead of the festive season offers timely relief to many borrowers. While the one-year MCLR remains unchanged at 8.80%, reductions in the overnight and three-month tenors are expected to make short-term and floating loans more affordable.

As borrowers prepare for higher spending in the festive months, the move is likely to stimulate loan demand and enhance consumer sentiment. However, all eyes remain on whether other lenders will follow suit and whether RBI’s policy direction in the coming months will bring further rate cuts.