A rise in MCLR typically leads to higher borrowing costs for loans

Public sector lenders have begun raising their marginal cost of funds-based lending rates (MCLR), signalling a tightening in funding conditions, with Canara Bank, Bank of Baroda, Union Bank, Bank of India and Central Bank of India announcing increases across select tenures.

On Thursday, Union Bank raised its MCLR by 5 basis points (bps) across tenures. Union Bank raised MCLR for overnight to three-years tenure by 5 bps from 7.85 per cent to 9.05 per cent. Canara B,ank, Bank of Baroda and bank of India also announced a 5 bps increase in MCLR across select tenures.

Canara Bank raised MCLR for overnight to six-month tenures by 5 bps, while leaving longer-tenure rates unchanged. Its revised MCLR now ranges from 7.95 per cent to 9.05 per cent. Bank of Baroda, in contrast, increased MCLR by 5 bps across all tenures, taking its range to 7.85 per cent to 8.75 per cent.

Marginal Costs

Private sector HDFC Bank also hiked MCLR by up to 10 bps across select tenors, taking its overall rates range from 8.05 per cent to 8.65 per cent, reflecting similar pressures on funding costs across the banking system. The adjustments come even as the Reserve Bank of India has kept the repo rate unchanged at 5.25 per cent after cumulative cuts last year, indicating that liquidity conditions rather than policy rates are driving lending benchmarks.

“Increases in MCLR reflect the ongoing tightness in system liquidity and rising marginal cost of funds for banks. With deposit mobilisation becoming more competitive, lenders are gradually transmitting these higher costs to borrowers. While this trend is likely to persist in the near term, much will depend on the evolution of liquidity conditions and the pace of deposit growth,” said Sanjay Agarwal, Senior Director, CareEdge Ratings.

Gaura Sengupta, chief economist, IDFC First bank said, “This should ease by July-August once the FCNR (B) money start coming.”

A rise in MCLR typically leads to higher borrowing costs for loans linked to this benchmark, particularly corporate and retail loans. The recent moves suggest banks are passing on higher marginal funding costs to borrowers, even as they await an improvement in liquidity conditions in the coming months.

Published on June 10, 2026