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Indian Overseas Bank (IOB), one of the major public sector banks in India, has announced a downward revision of its one-year Marginal Cost of Funds-Based Lending Rate (MCLR) to 8.85 percent, effective September 15, 2025. The change is likely to reduce the repayment burden for borrowers, especially those whose loans are benchmarked to the MCLR framework, while providing an important signal about the evolving lending environment in the domestic banking sector.
Key Highlights Of The Revision
The one-year MCLR has been brought down to 8.85 percent, effective from September 15.
Borrowers with home loans, personal loans, and business loans tied to MCLR will see revised rates at their next reset date.
The adjustment reflects the bank’s periodic review based on cost of funds and market dynamics.
The move is expected to add competitiveness to IOB’s lending portfolio while offering relief to existing customers.
What Is MCLR And Why It Matters
The Marginal Cost of Funds-Based Lending Rate (MCLR) is the lowest interest rate at which a bank can lend, subject to certain exceptions allowed by the Reserve Bank of India (RBI). This system, introduced in 2016 to replace the base rate, ensures lending rates are more responsive to changes in monetary policy and cost of funds.
Most retail loans in India, particularly home loans, are linked to the one-year MCLR. Whenever banks revise this benchmark, customers experience changes in their interest rate obligations during scheduled reset periods. Hence, a lower MCLR translates into reduced equated monthly installments (EMIs) and long-term borrowing cost savings.
Impact On Borrowers
For customers, the rate cut means:
A decline in EMIs during the reset cycle of existing loans linked to the one-year MCLR.
Enhanced affordability for new borrowers as fresh loans will be offered at comparatively lower rates.
A positive boost for demand in rate-sensitive sectors like housing and automobiles, as loan EMIs become manageable.
Implications For The Bank
For Indian Overseas Bank, this strategic move addresses both competition and lending dynamics.
Lowering MCLR can make IOB more attractive to borrowers amid stiff competition from other banks.
It helps boost credit growth across retail, MSME, and corporate segments.
At the same time, it indicates the bank’s confidence in balancing cost of funds with lending volume growth.
Wider Banking Sector Trends
Banks across India have been adjusting their MCLRs to match changes in liquidity and funding costs. Over the past year, deposit costs have gradually risen due to competition, prompting many lenders to take a cautious yet competitive path when reviewing lending rates.
The RBI has kept a balanced monetary stance, managing inflationary pressures while ensuring adequate liquidity to support credit expansion. Public sector banks, including IOB, have been revisiting their rate structures more frequently to stay aligned with market conditions.
What Borrowers And Investors Should Watch
This revision is effective from September 15, and its practical effects will be visible as loan contracts hit their scheduled reset dates. Going forward:
Retail borrowers can expect to save on EMIs, depending on their outstanding balances and loan tenure.
Businesses relying on working capital loans will benefit from slightly reduced financing costs.
Investors and market watchers will track whether similar moves by other banks spur a wave of rate adjustments across the sector.
Conclusion
Indian Overseas Bank’s decision to lower the one-year MCLR to 8.85 percent is more than just a technical rate change. For borrowers, it means tangible relief at a time when household budgets remain sensitive to interest expenses. For the bank, it showcases a measured approach to fostering credit growth while navigating the costs of maintaining deposits and funds. As the lending environment becomes more competitive across public and private sector players, such adjustments are set to define credit availability and affordability through the second half of 2025.
Source: Reuters
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