Allahabad Bank, PNB link loan products to repo rate

State-run Allahabad Bank on Tuesday announced linking of its retail loans with the Reserve Bank of India's repo rate in order to make them cheaper. The repo rate is the rate at which the Reserve Bank of India (RBI) lends money to other banks.

In a regulatory filing, Allahabad Bank said it has benchmarked its loans up to Rs 75 lakh with the external benchmark linked rates (EBLR) with effect from September 1, 2019.

"In order to ensure quicker transmission of policy rate adjustments, the bank has decided to price its housing loans up to Rs 75 lakh and Mudra loans sanctioned with effect from September 1, 2019, with reference to EBLR," Allahabad Bank said in a filing to the Bombay Stock Exchange.

The move comes days after the Finance Minister Nirmala Sitharaman said that banks will launch loan products linked to repo rate or an external benchmark that will lead to reduced EMIs for housing, vehicle and other retail loans.

Also Read: FM Sitharaman assures EMIs will get cheaper; banks asked to link home, auto loans to repo rate

Even RBI Governor Shaktikanta Das had urged banks to pass on the benefits after the Monetary Policy Committee reduced repo rates by 35 bps earlier this month. Das had emphasised that banks need link their lending interest rates to repo rate or an external benchmark in order to pass the benefits of policy rate cuts to their borrowers.

"However, the borrowers shall have the option for either marginal cost of funds based lending rates (MCLR) linked loan or EBLR linked loan at mutually acceptable terms," the bank said in the filing.

Presently, banks price their loans based on their marginal cost of funds-based lending rate (MCLR). Now, customers will have the option to select between MCLR linked rate or a repo rate linked to the external benchmark.

The Allahabad Bank further stated that all the saving bank deposits of Rs 40 lakh and above will be linked with external benchmark with effect from October 1, 2019.

Also Read: RBI governor Shaktikanta Das says time other banks linked loans, deposits to repo rate

In a separate development, Punjab National Bank (PNB) said it has launched PNB Advantage, a retail lending scheme linked with the repo rate with effective from Tuesday. The bank will offer an option to its existing customers to switch over to new Repo Linked Lending Rates (RLLR) with minimal charges, it said.

"In the new schemes rate of interest will be 0.25 per cent less than the existing applicable rates based on MCLR. The new rates will vary from 8.25 per cent to 8.35 per cent for housing loan borrowers and 8.65 per cent for car loan borrowers," PNB said.

While State Bank of India (SBI) was to first one to link its loans and deposits to the repo rate from May and home loans from July, six other peer banks like Bank of Baroda, Union Bank, and Canara Bank among others announced the same earlier this month.

Edited by Chitranjan Kumar