State-owned Punjab National Bank (PNB) has raised the repo-linked lending rate (RLLR) from 6.5% to 6.9% with effect from June 1 for existing customers.
For new customers, the revised RLLR will come into effect from May 7. The Bank has also raised interest rates on time deposits in selected tranches by up to 60 basis points effective tomorrow.
The rise in the RLLR comes after the Reserve Bank of India (RBI) announced a surprise 40 basis point (bp) hike in key rates. In addition, the cash reserve ratio (CRR) was also increased by 50 basis points.
Besides PNB, ICCI Bank and Bank of Baroda have also linked their external interest rates on benchmark loans. The benchmark external lending rate moves up or down depending on the change in the repo rate.
RBI’s increase in repo will drive up the cost of most personal loans, car loans and home loans for customers, as new loans after October 2019 are tied to the repo rate.
In 2019, the Reserve Bank advised all banks to tie the interest rate to an external benchmark (which is the repo rate) on all new variable rate personal or retail loans as well as variable rate to MSMEs, from 1 October 2019.