Banks begin reducing MCLRs; what does this mean for your EMIs?

The Reserve Bank of India (RBI) reduced interest rate by 25 basis points on Tuesday in a bid to make borrowings cheaper. 

It seems that banks in India have begun following the lead. First it was India's one of the largest private sector banks, ICICI Bank that reduced MCLR. 

MCLR is Marginal Cost of Funds based Lending Rate. This, simply put, is the benchmark interest rate that banks use to lend money to its customers of various loans, like home, car, personal, etc. 

Following ICICI Bank's lead, Bank of India (BOI) has also brought down its MCLR by 0.05%, to 9.65%. 

The one-year MCLR rate of ICICI Bank, which is used to compute the effective yearly rate in a slew of products including the home loans, will be 9.05% as against 9.10%, Livemint reported on Tuesday. 

This means that your monthly instalment for your home-loan,which is largely based on floating interest rate, will see a downward revision. 

" In compliance of Regulation 30 of Sebi-LODR Regulations- 2015 read with Securities and Exchange Board of India (Sebi) circular on continuous disclosure requirements for listed entities, this is to inform you that the bank has revised its base rate from 9.70% (existing) to 9.65%, with effect from September 30, 2016," Bank of India (BOI) said in a filing to the BSE on September 28 this year.

At 09:49 hours, the stock of Bank of India (BOI) was trading up 0.08% or Rs 0.10 at Rs 119.58 on the BSE on Thursday.

See LIVE stock updates of Bank of India (BOI) here-

At 09:47 hours, the stock of ICICI Bank was trading up 0.18% or Rs 0.45 at Rs 256.10 on the BSE.

See LIVE stock updates of ICICI Bank here-

RBI's new Governor Urjit Patel in his first bi-monetary policy meet on Tuesday had announced 25 basis points rate cut in the central bank's repo rate -the rate at which the RBI lends to banks- to a six year low of 6.25%. 

The above rate cut by the two banks has come after Patel said in the monetary policy meet that the central bank has cut the rates but banks have not been passed on the rate cut benefit to final consumers. 

"Transmission of interest rate cuts by banks has not been up to the mark despite the 150 basis points rate cut by the RBI since January 2015 but the central bank hopes the recent cuts in small savings rates will lead to lower deposit rates and ultimately will reduce borrowing rates," The Economic Times reported quoting Patel as saying.