Indian Overseas Bank (IOB) has announced a reduction in its Marginal Cost of Funds-Based Lending Rate (MCLR) by 10 basis points across all tenors, effective July 15, 2025. This decision, made by the bank's Asset Liability Management Committee (ALCO) on July 14, 2025, aims to make borrowing more affordable for both retail and corporate customers.
Revised MCLR Rates
The revised MCLR rates, effective July 15, 2025, are as follows:
The one-year MCLR is a crucial benchmark for pricing consumer and corporate loans. The updated rates will remain in effect until the next review.
Impact on Borrowers
The MCLR reduction is expected to lower borrowing costs for new loans and existing loans with floating interest rates linked to the MCLR. This could translate to reduced Equated Monthly Installments (EMIs) for borrowers with such loans. Borrowers with loans linked to MCLR, such as home loans or personal loans, may experience some relief.
However, it's important to note that the actual impact on EMIs will depend on the loan's reset date. Borrowers may need to wait until their next reset date to see the changes reflected in their payments.
Broader Context
This move follows IOB's earlier decision to reduce its Repo Linked Lending Rate (RLLR) by 50 basis points, from 8.85% to 8.35%, effective June 12, 2025. These adjustments align with the bank's strategy to encourage loan growth and offer more affordable credit options to its customers.
Indian banks have been actively adjusting their lending rates in response to macroeconomic conditions, funding costs, and central bank policies. The Reserve Bank of India (RBI) has been focused on controlling inflation, and banks are finding ways to pass on lower funding costs to borrowers.
This rate cut also reflects the increasing competition among public and private sector banks for market share in retail and SME lending. By lowering MCLR and RLLR rates, IOB aims to attract price-sensitive borrowers and support India's credit-driven economic expansion.
IOB plans to increase the proportion of its loan portfolio linked to MCLR. The bank is reportedly working to shift corporate and agriculture loans, which constitute a significant portion of its credit portfolio, to MCLR. While MCLR-linked loans will also experience rate reductions, these changes may occur with a lag.
Overall, IOB's MCLR cut is a positive development for borrowers, potentially leading to lower EMIs and more affordable credit. It also signals the bank's commitment to staying competitive and supporting economic growth.
