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Key Takeaways
Is your current loan also linked to the Marginal Cost of Funds-Based Lending Rate (MCLR)? If yes, then your EMIs may become costlier in the coming months.
Public sector lender Canara Bank has revised its MCLR upward by 5 basis points (bps) across all loan tenures, effective May 12, 2026. As per a report by the EconomicTimes, The move means customers with floating-rate home loans, personal loans, vehicle loans, and MSME loans tied to MCLR could see a slight increase in their Equated Monthly Instalments (EMIs).
In contrast, Bank of Baroda has kept its lending benchmark unchanged for now, bringing some relief to borrowers already struggling with high interest costs.
Canara Bank revised all seven MCLR tenures upward by 5 bps. While the increase may appear marginal, its impact becomes noticeable for borrowers with large-ticket and long-duration loans.
This table presents a comparison between the old MCLR rates and the new MCLR rates
The one-year MCLR is especially important because most retail floating-rate home loans are linked to this benchmark.
MCLR is the minimum lending rate below which banks generally cannot lend. Introduced by the Reserve Bank of India in 2016, it was aimed at improving transmission of policy rate changes to borrowers.
When banks raise MCLR, fresh borrowers immediately face higher borrowing costs. Existing borrowers also get impacted once their interest reset cycle arrives.
For example, if your home loan is linked to the one-year MCLR and your reset date falls next month, your interest rate may rise by 0.05%.
That sounds tiny. But over a 20-year loan, the additional outgo can become meaningful.
Suppose you have a ₹50 lakh floating-rate home loan for 20 years.
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Now ₹159 may not look alarming initially. But over 240 months, the borrower may end up paying nearly ₹38,000 extra during the loan tenure.
For borrowers already dealing with elevated living costs, insurance premiums, school fees, and healthcare expenses, even small EMI increases can tighten monthly cash flows.
Banks usually revise MCLR depending on their cost of funds, liquidity conditions, deposit mobilisation expenses, and broader interest-rate trends.
One can notice that nowadays banks have been aggressively competing for deposits. To attract savers, many lenders increased fixed deposit interest rates. Naturally, higher deposit costs push banks to raise lending benchmarks too.
An article by the WhalesBook wrote that public sector banks are trying to protect their net interest margins amid rising funding pressures.
Interestingly, the move also comes at a time when the market was expecting softer lending rates after signs of moderating inflation.
However, rate transmission across banks remains uneven.
While Canara Bank increased rates, lenders like HDFC Bank recently reduced MCLR on select shorter tenures. This act shows that banks are taking institution-specific calls based on liquidity and profitability conditions.
Not immediately.
Borrowers should first check whether their loans are linked to:
Many newer retail loans are now linked directly to the RBI repo rate rather than MCLR. Such borrowers may not see an immediate impact from this particular revision.
However, older home loans and several MSME loans still operate under the MCLR regime.
Financial planners suggest borrowers should:
Even a small prepayment can reduce overall interest burden significantly in long-tenure loans.
The next few months will be crucial for India’s lending market.
If deposit costs continue rising, more banks may revise MCLR upward. On the other hand, any policy easing signals from the Reserve Bank of India could eventually bring relief to borrowers.
For now, Canara Bank customers with floating-rate loans should prepare for marginally higher EMIs, while Bank of Baroda borrowers can breathe easy, at least temporarily.
What's the difference between the repo rate and the MCLR rate?
Repo rate is the interest rate at which the RBI lends money to banks, while MCLR is the minimum rate below which banks generally cannot lend to customers.
EBLR vs MCLR: Which Home Loan Interest Rate Should You Choose in 2026?
EBLR-linked home loans are usually better in 2026 because they transmit RBI rate cuts faster and offer more transparent interest rate changes than MCLR-based loans.
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