MCLR Rate Reduction: PNB and BoI Offer Relief to Borrowers
- THE MAG POST
- Sep 5
- 6 min read
The landscape of lending rates is subtly shifting, even as the Reserve Bank of India holds its ground on key policy rates. Punjab National Bank and Bank of India have recently announced reductions in their Marginal Cost of Funds-based Lending Rates (MCLR), a move that directly impacts borrowers with loans tied to this benchmark. Effective September 1, 2025, these adjustments offer a glimmer of relief, signaling a proactive approach by these public sector banks to remain competitive. While the repo rate stands firm at 5.5%, the banks' decision to lower MCLR demonstrates their strategic intent to attract and retain customers in a dynamic financial market, influencing the cost of borrowing for a significant segment of the population.
Decoding the MCLR Shifts: PNB and BoI Lead Rate Adjustments
In a strategic move signaling a competitive landscape, Punjab National Bank (PNB) and Bank of India (BoI) have recently revised their Marginal Cost of Funds-based Lending Rates (MCLR). This adjustment, effective September 1, 2025, offers a welcome reprieve for numerous borrowers whose loans remain tethered to this benchmark. While the Reserve Bank of India (RBI) has maintained a steady hand on the repo rate at 5.5% following its August monetary policy review, these public sector banks are proactively recalibrating their lending costs, potentially influencing market dynamics and borrower sentiment.
PNB's Strategic Rate Realignment
Punjab National Bank has implemented a notable reduction in its MCLR, shaving off up to 15 basis points across various loan tenures. This strategic adjustment aims to enhance its market competitiveness and provide tangible benefits to its clientele. The overnight MCLR, for instance, has seen a decrease from 8.15% to a more attractive 8.00%. Similarly, the one-month MCLR has been trimmed from 8.30% to 8.25%, and the three-month MCLR now stands at 8.45%, down from 8.50%. For longer-term financial commitments, the six-month MCLR has been adjusted to 8.65% from 8.70%, and the widely referenced one-year MCLR is now 8.80%, down from 8.85%. Even the three-year MCLR reflects this downward trend, moving from 9.15% to 9.10%, demonstrating a comprehensive effort to lower borrowing costs across the board.
Overnight and Short-Term Rate Adjustments
The immediate impact of PNB's revised rates is felt most acutely in the overnight and short-term lending segments. The reduction to 8.00% for overnight borrowing signifies a more cost-effective option for immediate liquidity needs. Correspondingly, the slight but meaningful decrease in one-month and three-month MCLR to 8.25% and 8.45%, respectively, provides a more favorable environment for businesses and individuals requiring short-term credit facilities. These adjustments are crucial for managing working capital and short-term projects, making PNB a potentially more appealing choice for such financial requirements.
Mid to Long-Term Lending Benefits
Beyond the immediate horizon, PNB's MCLR reductions extend to its mid and long-term lending products. The six-month MCLR at 8.65% and the one-year MCLR at 8.80% offer improved affordability for borrowers planning for medium-term needs, such as vehicle financing or personal loans. The adjustment in the three-year MCLR to 9.10% further underscores PNB's commitment to easing the burden on longer-term financial obligations, potentially stimulating demand for loans tied to these tenures. This holistic approach to rate reduction signals a proactive strategy to capture a broader market share.
Bank of India's Targeted Rate Reductions
Complementing PNB's efforts, Bank of India (BoI) has also enacted MCLR reductions, focusing on a band of 5 to 15 basis points across nearly all tenures, with the notable exception of the overnight rate, which remains static at 7.95%. This targeted approach ensures that BoI remains competitive while strategically managing its funding costs. The one-month MCLR has been revised downward from 8.40% to 8.30%, and the three-month MCLR sees a similar reduction, moving from 8.55% to 8.45%. This pattern continues with the six-month MCLR now at 8.70% (down from 8.80%) and the one-year MCLR at 8.85% (down from 8.90%). The three-year MCLR has also been adjusted, decreasing from 9.15% to a competitive 9.00%, demonstrating a clear strategy to attract borrowers seeking value across different loan durations.
Short-Term Financing Advantages at BoI
For borrowers focused on short-term financial needs, BoI's revised rates offer distinct advantages. The reduction in the one-month MCLR to 8.30% and the three-month MCLR to 8.45% makes BoI a compelling option for businesses requiring agile financing solutions. These adjustments are particularly beneficial for managing operational expenses or seizing short-term market opportunities where timely and cost-effective credit is paramount. The strategic positioning of these rates aims to capture a segment of the market prioritizing immediate borrowing cost savings.
Long-Term Loan Competitiveness
BoI's commitment to affordability extends to its longer-term loan offerings. By reducing the six-month MCLR to 8.70% and the one-year MCLR to 8.85%, the bank enhances its appeal for borrowers planning for significant expenditures like home renovations or vehicle purchases. The most substantial reduction is observed in the three-year MCLR, now at 9.00%, making it one of the more attractive options for longer-term financing. This strategic pricing aims to bolster BoI's position in the competitive long-term lending market, encouraging borrowers to consider their offerings for extended financial commitments.
The Broader Banking Landscape and MCLR's Role
These downward adjustments by PNB and BoI are not isolated incidents but rather indicative of a broader trend among banks striving for market relevance. In an environment where the RBI has paused its rate-hiking cycle, banks are increasingly employing selective rate reductions as a key strategy to attract and retain customers. The MCLR, despite the increasing prevalence of external benchmarks, continues to be a critical determinant of interest rates for a significant portfolio of existing floating-rate loans, including popular segments like housing and auto loans. This makes any change in MCLR a direct point of financial impact for millions of consumers and businesses.
Understanding MCLR vs. EBLR
It is essential for borrowers to understand the distinction between MCLR and the External Benchmark Lending Rate (EBLR). While MCLR is an internal benchmark set by banks based on their cost of funds, EBLR is linked to an external benchmark, typically the RBI's policy repo rate, offering greater transparency and faster transmission of monetary policy changes. Although new floating-rate loans are predominantly linked to EBLR, banks continue to offer customers the option to transition their existing MCLR-linked loans to EBLR. This flexibility allows borrowers to choose the regime that best suits their financial strategy, potentially benefiting from lower rates or more predictable interest rate movements.
Navigating Borrower Benefits and Choices
The primary benefit of a lower MCLR for existing borrowers is a direct reduction in their Equated Monthly Installments (EMIs). This financial relief can be substantial over the loan's tenure, freeing up disposable income or allowing for accelerated principal repayment. However, the banking sector's dynamic nature, with the ongoing shift towards EBLR, presents borrowers with a crucial decision point. Evaluating whether to remain with an MCLR-linked loan or switch to an EBLR-linked facility requires careful consideration of current interest rate trends, future economic outlook, and individual financial circumstances. Banks are increasingly facilitating these transitions, underscoring the importance of informed decision-making for optimal financial management.
Key Takeaways: MCLR Adjustments and Borrower Implications
The recent MCLR reductions by Punjab National Bank and Bank of India underscore a competitive banking environment, even as the RBI maintains a stable repo rate. These adjustments, effective September 1, 2025, translate into lower EMIs for existing borrowers and signal a strategic effort by these institutions to attract new clientele. While MCLR remains crucial for a vast number of legacy loans, the shift towards EBLR offers borrowers enhanced transparency and responsiveness to monetary policy. Ultimately, understanding the nuances of both MCLR and EBLR, and evaluating the option to switch, empowers borrowers to make informed decisions that align with their financial goals in this evolving landscape.
Bank | Tenure | Previous MCLR (%) | Revised MCLR (%) | Basis Points Reduction |
Punjab National Bank (PNB) | Overnight | 8.15 | 8.00 | 15 |
Punjab National Bank (PNB) | 1 Month | 8.30 | 8.25 | 5 |
Punjab National Bank (PNB) | 3 Months | 8.50 | 8.45 | 5 |
Punjab National Bank (PNB) | 6 Months | 8.70 | 8.65 | 5 |
Punjab National Bank (PNB) | 1 Year | 8.85 | 8.80 | 5 |
Punjab National Bank (PNB) | 3 Years | 9.15 | 9.10 | 5 |
Bank of India (BoI) | Overnight | 7.95 | 7.95 | 0 |
Bank of India (BoI) | 1 Month | 8.40 | 8.30 | 10 |
Bank of India (BoI) | 3 Months | 8.55 | 8.45 | 10 |
Bank of India (BoI) | 6 Months | 8.80 | 8.70 | 10 |
Bank of India (BoI) | 1 Year | 8.90 | 8.85 | 5 |
Bank of India (BoI) | 3 Years | 9.15 | 9.00 | 15 |
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