Loans get costlier: PNB, BOB others hike rates after RBI’s 25-bps repo rate hike

Punjab National Bank and Bank of Baroda have raised lending rates, with other lenders also moving after the Reserve Bank of India tightened policy on October 7. The RBI increased the repo rate by 25 basis points to 5.50%, its first increase in nearly four years. It also indicated that more increases could follow as inflation accelerated and the domestic currency depreciated. The material does not specify the size or effective dates of individual banks' loan rate changes. Bank of Baroda was quoted at Rs 237.86, up 1.4% today.

Higher repo rates tend to feed into banks' benchmark lending rates, making mortgages, vehicle loans and corporate borrowing more expensive. For Bank of Baroda and Punjab National Bank, faster loan repricing may support interest income, but the benefit could narrow if deposit and wholesale funding costs rise or credit demand slows. Rate sensitive sectors such as housing, automobiles and leveraged businesses may face softer demand and higher finance costs. The banking sector is down 4.2% over one month and 1.1% over three months, while Bank of Baroda is 27% below its 52 week high. Broader bank repricing and resilient loan growth would confirm transmission. Limited pass through, easing inflation or currency stability would weaken it.