Taking a big decision on Wednesday, the Reserve Bank of India increased the repo rates by 40 basis points (bps). RBI Governor Shashikant Das said that after this hike from May 4, the RBI policy repo rate has gone up to 4.4%. Meanwhile, soon after the central bank’s announcement, private sector lender ICICI Bank has announced a hike in its external benchmark lending rate.
ICICI Bank has increased its external benchmark lending rate by 40 bps to 8.10% i.e. now the I-EBLR will be 8.10% p.a, this hike will be effective from 4th May 2022. That is, its impact will be directly on the customers of ICICI Bank.
What is the benchmark lending rate?
External Benchmark Lending Rates (EBLR) is the lending rate fixed by banks on the basis of external benchmarks like the repo rate. It is the minimum interest rate at which commercial banks lend and on this basis the monthly EMI of the lending liability is fixed or simply put, the loan is given at this interest rate.
RBI had released the lending rate
RBI introduced Base Lending Rate (BLR) system in 2010. It was then brought under the Marginal Cost of Funds-Based Lending Rate (MCLR) system in 2016 and the External Benchmark-Linked Lending Rate (EBLR) in October 2019. Any bank adds credit risk premium (CRP) on EBLR and RLLR while granting any type of loan including home and auto loans. SBI’s external benchmark based lending rate (EBLR) rate is 6.65%, while the repo-linked lending rate (RLLR) is 6.25 with effect from April 1.
what will be the effect
After the decision of RBI, there is a possibility of increase in the EMI of home, auto and other loans. At the same time, due to the increase in the lending rate by ICICI Bank, the interest of the loan will increase. The RBI’s hike from a record low of 4 per cent to 4.40 per cent is the first time since August 2018.