Punjab National Bank (PNB) has hiked the interest rate on home loans. The bank has hiked the repo-linked lending rate (RLLR) by 50 basis points (100 bps = 1%) from 7.70% to 8.40%.

Along with this, the bank has also hiked the marginal cost of funds lending rate (MCLR) by 0.05% on all tenures. The bank has announced a hike in base rate by 5 bps. “The Base rate has been revised from 8.75% to 8.80% w.e.f. 01-10-2022,” said the bank’s website.
PNB MCLR rate as on October 1, 2022

The hike in interest rate, typically charged on a home loan, has come after the Reserve Bank of India (RBI) hiked the key policy rate consequently for the fourth time since May 2022.

How much home loan EMI will increase?
All the home loans disbursed by banks are currently linked to an external benchmarking lending rate (RLLR). With the latest hike in RLLR by 50 bps, here is an example showing how much your EMI outgo is likely to impact.

Suppose Mr X has taken a home loan of Rs 30 lakh for a tenure of 25 years. The old interest rate charged on a home loan is 7.90% and the new interest rate is 8.40%.

For the purpose of calculation, it is assumed that no credit risk premium is charged by the bank.

What is the difference between MCLR and RLLR lending regimes?
If you have taken a home loan before October 1, 2019, then it is likely that your home loan is linked to the MCLR regime. Under the MCLR-based lending regime, the home loan is typically linked to the one-year MCLR rate.

As per RBI guidelines, “The Marginal Cost of Funds based Lending Rate (MCLR) prevailing on the date of first disbursement, whether partial or full, shall be applicable till the next reset date, irrespective of the changes in the benchmark during the interim. Future reset dates shall be determined accordingly. The periodicity of the reset under MCLR shall correspond to the tenor/ maturity of the MCLR to which the loan is linked. The periodicity of reset shall be one year or lower. The exact periodicity of reset shall form part of the terms of the loan contract.”

On the other hand, if you have taken a home loan on or after October 1, 2019, then the interest rate on your home loan is determined on the basis of an external benchmark lending rate. As per the RBI guidelines, a benchmark can be any one of the following:

• Reserve Bank of India policy repo rate
• Government of India 3-Months or 6-Months Treasury Bill yield published by the Financial Benchmarks India Private Ltd (FBIL)
• Any other benchmark market interest rate published by the FBIL.

The interest rate under the external benchmark shall be reset at least once in three months. Thus, any change in the external benchmark is passed on faster to the borrowers as compared to the MCLR based lending regime.