Borrowers can breathe a sigh of relief as Punjab National bank (PNB) and Bank of india (BoI) have announced a reduction in their Marginal Cost of Funds-based Lending Rates (MCLR). Effective from September 1, 2025, this move is expected to lower EMIs on home, personal, and auto loans, providing much-needed financial relief.
Even though the RBI kept the repo rate unchanged at 5.5% during its august 6, 2025 MPC meeting, banks have proactively reduced lending rates to ease the burden on borrowers amid rising household expenses.
1. PNB Cuts MCLR Across Multiple Tenures
PNB revised its MCLR rates across various tenures, with reductions ranging from 5 to 15 basis points. Here’s a snapshot of the new rates:
Overnight MCLR: 8.00% (was 8.15%)
One-month MCLR: 8.25% (was 8.30%)
Three-month MCLR: 8.45% (was 8.50%)
Six-month MCLR: 8.65% (was 8.70%)
One-year MCLR: 8.80% (was 8.85%)
Three-year MCLR: 9.10% (was 9.15%)
Impact: Borrowers with floating-rate loans linked to MCLR could see lower EMIs in the coming months, helping ease financial pressure.
2. bank of india Follows Suit
Bank of india also announced MCLR reductions across most tenures, except the overnight rate, effective September 1, 2025. The cut ranges between 5 and 15 basis points, ensuring borrowers across sectors benefit from reduced loan repayments.
3. What is MCLR and Why It Matters
MCLR (Marginal Cost of Funds-based Lending Rate) is the benchmark interest rate banks use to determine lending rates for floating-rate loans such as home, personal, and auto loans.
Lower MCLR → Lower EMIs: Reductions directly translate into reduced monthly installments for existing borrowers.
Transmission of RBI Policy: While the RBI keeps policy rates stable, banks can adjust MCLR independently to suit borrower needs.
4. MCLR vs. EBLR: What’s the Difference?
With recent regulatory changes, new loans are linked to EBLR (External Benchmark Lending Rate), while older loans remain under MCLR. Here’s the difference:
Feature | MCLR | EBLR |
Applied to | Older floating-rate loans | New loans linked to external benchmarks |
Benchmark | Bank’s internal cost of funds | External benchmarks (Repo rate, Govt. securities, T-bills) |
Rate Transmission | Slower, depends on internal policies | Faster, reflects RBI policy changes directly |
EMI Impact | Changes affect EMIs gradually | EMIs adjust quickly with policy rate changes |
Borrowers of older MCLR-linked loans may also opt to switch to EBLR-based loans for faster and transparent rate adjustments.
5. Why These Cuts Matter
Financial Relief: Reduced EMIs provide breathing space for households managing multiple loans.
Boost to Credit Demand: Lower rates may encourage more borrowing for housing, auto, and personal loans.
Customer-Friendly Approach: By cutting MCLR ahead of policy changes, banks show proactive support for borrowers.
Key Takeaway
With PNB and bank of india reducing MCLR rates, millions of borrowers can expect immediate relief on EMIs, especially for housing and vehicle loans. While RBI policy rates remain steady, banks’ proactive measures ensure households can better manage finances during these uncertain economic times.
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