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Canara Bank & Union Bank Cut Lending Rates Following RBI Repo Rate Reduction

Loan Relief on the Horizon: Canara Bank and Union Bank Slash Lending Rates Following RBI Repo Cut

In a move poised to bring significant relief to millions of borrowers across India, two major public sector banks—Canara Bank and Union Bank of India—have announced reductions in their lending rates. This decision comes hot on the heels of the Reserve Bank of India's (RBI) recent repo rate cut, signaling a broader effort to stimulate economic growth amid slowing inflation and global uncertainties. The adjustments are expected to lower the cost of borrowing for everything from home loans to vehicle financing, potentially easing the financial burden on households and businesses alike.

The RBI's repo rate, which is the rate at which the central bank lends money to commercial banks, was trimmed by 25 basis points in its latest monetary policy review. This marks the first such cut in over a year, driven by moderating inflation rates that have dipped below the RBI's target range of 4-6%. Economists attribute this to factors like stable food prices, a stronger rupee, and subdued global oil costs. By lowering the repo rate, the RBI aims to encourage banks to pass on the benefits to consumers, thereby boosting credit demand and supporting sectors like real estate and manufacturing that have been grappling with high interest rates.

Canara Bank, one of India's largest public sector lenders with a vast network spanning urban and rural areas, was quick to respond. The bank announced a reduction in its Marginal Cost of Funds-based Lending Rate (MCLR) across various tenors. Specifically, the overnight MCLR has been cut by 10 basis points to 8.05%, while the one-month rate now stands at 8.15%, down from 8.25%. For longer tenors, such as the one-year MCLR—which serves as a benchmark for most retail loans—the rate has been slashed by 15 basis points to 8.45%. This adjustment is particularly beneficial for floating-rate loans, where interest rates are reset periodically based on the MCLR. Borrowers with existing home loans or personal loans linked to this benchmark could see their Equated Monthly Installments (EMIs) decrease by up to 5-7%, depending on the loan amount and remaining tenure.

Union Bank of India followed suit, mirroring the sentiment of providing timely relief. The bank reduced its MCLR by 10-15 basis points across the board. Its three-month MCLR now sits at 8.20%, a drop from 8.35%, while the six-month and one-year rates have been adjusted to 8.40% and 8.55%, respectively. Union Bank's move is seen as strategic, given its strong focus on retail and MSME lending. A spokesperson from the bank emphasized that this rate cut aligns with the RBI's directive to transmit monetary policy benefits swiftly to end-users. "We are committed to supporting our customers during these times of economic recalibration," the spokesperson noted, highlighting how lower rates could invigorate consumer spending and investment.

The implications of these rate cuts extend far beyond immediate EMI relief. For prospective homebuyers, this could translate into more affordable mortgages, potentially reviving the sluggish real estate market. Take, for instance, a Rs 50 lakh home loan at a reduced interest rate of around 8.5% (down from 8.7-9%). Over a 20-year tenure, this could save borrowers upwards of Rs 2-3 lakh in total interest payments. Similarly, auto loans and education loans, often tied to MCLR, will become cheaper, encouraging purchases and investments in human capital. Small and medium enterprises (SMEs), which form the backbone of India's economy, stand to gain as well. Lower borrowing costs could help them expand operations, hire more staff, and navigate post-pandemic recovery challenges.

Experts have lauded the banks' proactive stance but caution that the full impact depends on how widely these benefits are passed on. Dr. Rajiv Mehta, a senior economist at the Indian Institute of Banking and Finance, pointed out that while Canara and Union Bank's actions are commendable, other banks like State Bank of India (SBI) and Punjab National Bank (PNB) are expected to follow soon. "This repo cut is a ripple effect; it lowers banks' funding costs, allowing them to reduce lending rates without squeezing margins excessively," Mehta explained. He added that if inflation remains in check, further rate cuts could be on the cards, potentially leading to a cycle of easier credit conditions.

However, not all segments will benefit equally. Fixed-rate loan holders, for example, won't see immediate changes unless they opt to refinance, which involves additional costs. Moreover, the transmission of repo rate cuts has historically been uneven, with banks sometimes delaying adjustments to protect their net interest margins. Data from previous cycles shows that it often takes 3-6 months for the full effect to trickle down to retail borrowers. In this context, consumer advocacy groups are urging the RBI to monitor compliance closely and ensure transparency in rate transmissions.

Looking ahead, this development underscores a shifting economic landscape. With global headwinds like geopolitical tensions and supply chain disruptions, India's central bank is balancing growth imperatives with inflation control. The repo cut, combined with banks' responses, could help achieve the projected GDP growth of 7% for the fiscal year, as outlined in recent economic surveys. For everyday Indians, especially those burdened by high debt levels post-COVID, this spells a welcome breather. As one Mumbai-based borrower shared, "Lower EMIs mean I can finally plan that family vacation without dipping into savings."

In summary, Canara Bank and Union Bank's rate reductions are a direct response to the RBI's accommodative policy, promising tangible relief for borrowers. While challenges remain in ensuring equitable transmission, this step forward could catalyze broader economic momentum, fostering a more resilient financial ecosystem in the months to come. As more banks join the fray, the landscape of personal finance in India is set for a positive transformation.

Read the Full Business Today Article at:
[ https://www.businesstoday.in/personal-finance/banking/story/loan-relief-ahead-canara-bank-union-bank-ease-lending-rates-after-repo-cut-480033-2025-06-11 ]