Synopsis:
Bank of India and Punjab National Bank reduced their Marginal Cost of funds-based Lending Rates (MCLR) across multiple tenors, effective September 1, 2025, lowering borrowing costs.
The Marginal Cost of Funds-based Lending Rate (MCLR) represents the minimum interest rate below which banks are generally not allowed to lend. It serves as a benchmark for determining the lowest possible interest rate across different types of loans offered by banks.
The Reserve Bank of India (RBI) introduced the MCLR framework on April 1, 2016, replacing the earlier base rate system. The objective was to strengthen the transmission of monetary policy and bring greater transparency and market linkage to the way banks determine lending rates. Under this framework, banks can extend loans at either fixed or floating interest rates.
Since MCLR is closely tied to the repo rate, banks are required to revise their lending rates whenever the repo rate changes. This mechanism improves clarity in how loan rates are calculated and ensures that the pricing of credit remains fair and responsive for both borrowers and lenders. Recently, the following two public sector banks announced reductions in their MCLR:
1. Bank of India
With a market cap of Rs. 50,762 crores, the stock moved up by around 2 percent on BSE, rising to Rs. 112.1 on Monday. This PSU bank has announced a reduction in its Marginal Cost of Funds-based Lending Rate (MCLR), effective September 1, 2025. The MCLR for one-month, three-month, and six-month tenors has been cut by 10 basis points, while the one-year MCLR is reduced by 5 basis points and the three-year MCLR by 15 basis points.
For fixed-rate retail loans, the bank charges a Fixed Rate Spread (FRS) of 1.5 percent. Accordingly, the rate of interest for fixed-rate retail loans linked to the three-year MCLR plus FRS is set at 10.50 percent with effect from September 1, 2025. Interest on such loans is quoted in the format: FRS (10.50 percent) + Applicable CRP.
On the financial front, the bank’s net interest income (NII) declined marginally by around 3 percent YoY to Rs. 6,146 crores, while its net profit increased by nearly 2 percent YoY to Rs. 1,764 crores in Q1 FY25.
Also read: 20% Upper Circuit: Infra stock skyrockets after receiving ₹1,123 Cr order from BHEL
2. Punjab National Bank
With a market cap of Rs. 1.17 lakh crores, the stock moved up by around 1 percent on BSE, rising to Rs. 102.05 on Monday. Punjab National Bank, another major PSU bank, has reduced its MCLR across multiple tenors – 1 month, 3 months, 6 months, 12 months, and 36 months – by 5 basis points, effective September 1, 2025. However, the bank’s Repo Linked Lending Rate (RLLR) remains unchanged at 8.35 percent (including a BSP of 0.1 percent), and the Base Rate also stays steady at 9.50 percent.
On the financial front, the bank’s net interest income (NII) improved by around 1 percent YoY to Rs. 10,744 crores, while its net profit declined by nearly 51 percent YoY to Rs. 1,832 crores in Q1 FY25.
Written by Shivani Singh
Disclaimer
The views and investment tips expressed by investment experts/broking houses/rating agencies on tradebrains.in are their own, and not that of the website or its management. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution while investing or trading in stocks. Trade Brains Technologies Private Limited or the author are not liable for any losses caused as a result of the decision based on this article. Please consult your investment advisor before investing.
