here major state-owned banks—Punjab National Bank (PNB), Indian Bank, and Bank of India—have reduced their Marginal Cost of Funds-based Lending Rates (MCLR) by 5 basis points (bps) across various tenures starting July 2025. This reduction is expected to make borrowing slightly cheaper for both retail and corporate customers.
The move comes after the Reserve Bank of India (RBI) cut the repo rate by 100 basis points since February 2025, signaling an easing interest rate environment in the country.
What Is MCLR?
The Marginal Cost of Funds-based Lending Rate (MCLR) is the minimum interest rate below which a bank is not allowed to lend, except in specific cases permitted by the RBI. Introduced in 2016, MCLR replaced the base rate to make lending rates more responsive to changes in monetary policy.
Banks publish MCLR for different loan tenures, such as:
- Overnight MCLR: Loans maturing the next day
- One-month MCLR: Loans for a one-month duration
- Three-month MCLR: Applicable to loans maturing in three months
- Six-month MCLR: Loans with six-month maturity
- One-year MCLR: Most common benchmark for home, auto, and personal loans
- Three-year MCLR: Used for longer-tenure loans
The one-year MCLR is particularly crucial as most floating rate home and auto loans are linked to it. Any revision in this rate directly impacts EMIs (Equated Monthly Installments) for such borrowers.
MCLR Cuts by Punjab National Bank (PNB)
PNB, the country’s second-largest public sector bank, has lowered its MCLR by 5 bps across all loan tenures. The revised rates are effective from July 1, 2025.
- Overnight MCLR: Cut from 8.25% to 8.20%
- One–year MCLR: Reduced from 8.95% to 8.90%
- Three–year MCLR: Lowered from 9.25% to 9.20%
This rate adjustment will benefit a wide segment of PNB customers, especially those with home and car loans.
Indian Bank Revises MCLR
Indian Bank has also followed suit, cutting its benchmark lending rates by 5 bps, with effect from July 3, 2025. The revised MCLR is as follows:
- One-month MCLR: Down from 8.45% to 8.40%
- Six-month MCLR: Reduced from 8.90% to 8.85%
- One-year MCLR: Slashed from 9.05% to 9.00%
Indian Bank’s rate cut will provide modest EMI relief to existing loan customers and offer slightly lower starting rates for new borrowers.
Bank of India Eases Lending Rates
Bank of India has also announced a 5 bps cut in MCLR, effective July 1, 2025, across key loan tenures:
- Overnight MCLR: Reduced from 8.15% to 8.10%
- One-year MCLR: From 9.05% to 9.00%
- Three-year MCLR: Cut from 9.20% to 9.15%
This move aligns with the broader trend among public sector banks to pass on the benefits of lower funding costs to customers.
How Will This Affect Loan Customers?
Borrowers with floating-rate loans linked to MCLR can expect a slight decrease in their EMI payments over time. However, the timing of this benefit depends on the reset date of the loan contract. Most floating loans reset every 6 or 12 months, so the new MCLR will reflect only at the next reset.
For new borrowers, the impact is immediate, as fresh loans will be priced at the new, lower MCLR.
Key Takeaways for Borrowers:
- Review your loan agreement to check the reset frequency and benchmark rate.
- New borrowers can compare MCLR rates before applying to choose a bank offering the best deal.
- Borrowers may also consider refinancing if the interest rate differential is significant.
Expert Advice
Financial advisors recommend that borrowers closely monitor MCLR movements and understand how they influence EMIs. While a 5 bps cut may seem minor, over the long term, even small reductions can lead to meaningful savings in interest outgo.
Additionally, borrowers should evaluate the spread or markup applied over MCLR by the bank, which also determines the final loan rate.
Summary Table: New MCLR Rates (Effective July 2025)
| Bank | Overnight MCLR | One- Year MCLR | Three- Year MCLR |
| PNB | 8.20% | 8.90% | 9.20% |
| Indian Bank | _ | 9.00% | _ |
| Bank of India | 8.10% | 9.00% | 9.15% |
Conclusion
The July 2025 MCLR cuts by PNB, Indian Bank, and Bank of India offer a small but positive relief for borrowers amid a softening interest rate trend. While the immediate benefits may vary based on individual loan contracts, the broader direction suggests a more borrower-friendly environment in the coming months. Keeping a close eye on MCLR trends and understanding your loan’s terms can help you make the most of these changes
