Bank of Baroda and Canara Bank have revised their lending rates, bringing renewed attention to the possible impact on borrowers and monthly loan repayments.
The changes involve the Marginal Cost of Funds Based Lending Rate, commonly known as MCLR. MCLR is an internal benchmark used by banks to determine the minimum lending rate for certain categories of loans. When this benchmark increases, borrowers whose loans are linked to the affected MCLR can eventually face a higher interest burden.
However, an increase in MCLR does not automatically mean that every existing borrower will immediately see a higher EMI.
The actual impact depends on the terms of the loan agreement, including the benchmark to which the loan is linked and the reset frequency. Some borrowers may see changes in their interest rate only when their scheduled reset date arrives.
Canara Bank has revised its MCLR effective August 12, 2026. The bank increased its MCLR by 5 basis points across several tenures, according to reports on the latest revision.
The development comes after lending rate changes by public sector banks in recent months. Bank of Baroda and Canara Bank had also revised their MCLR rates earlier in June 2026.
What Is MCLR
MCLR is a benchmark that reflects the marginal cost of funds for a bank along with other factors considered under the regulatory framework.
Banks use different MCLR rates for different loan tenures. These can include overnight, one month, three month, six month and one year rates, among others.
Canara Bank's official rate document for June 2026, for example, listed separate MCLR rates for different tenures. The bank stated that these rates would apply to new loans and certain renewed or reset credit facilities from the effective date.
Therefore, borrowers need to check the specific benchmark and reset period associated with their loan rather than assuming that every MCLR revision will immediately change their monthly payment.
Will Existing Borrowers Pay More
Existing borrowers may not necessarily experience an immediate increase in their EMI.
For a floating rate loan linked to MCLR, the revised rate generally becomes relevant when the loan reaches its scheduled interest rate reset date. The frequency of this reset is determined by the terms of the loan agreement.
For example, a borrower whose loan has a six month reset period may not see the revised rate immediately if the next reset date is still several months away.
Similarly, borrowers whose loans are linked to another benchmark may not be directly affected by an MCLR revision.
This is why borrowers should check their loan documents and contact their bank if they are unsure about the benchmark or reset mechanism applicable to their account.
What Happens to EMIs
When the applicable interest rate increases, banks can adjust the EMI, extend the repayment period or use a combination of both, depending on the loan terms and applicable policies.
A borrower should therefore not assume that an MCLR increase automatically means the EMI will rise by a fixed amount.
The actual change depends on factors such as the outstanding loan balance, remaining tenure, existing interest rate and revised rate.
For borrowers with large outstanding balances, even a small change in the interest rate can increase the total interest payable over the remaining period.
However, the impact of a relatively small rate adjustment may be limited for borrowers with a smaller outstanding balance or a short remaining repayment period.
Canara Bank's Latest Revision
Canara Bank's latest MCLR revision took effect on August 12, 2026. Reports indicate that the bank increased rates by 5 basis points for most of its MCLR-linked tenures.
The bank's official MCLR documents explain that the rates apply to specified new loans and to credit facilities that are renewed, reviewed or reset under the applicable conditions.
This distinction is important because a bank's published MCLR does not mean that every existing borrower immediately moves to the new rate.
Bank of Baroda Borrowers
Bank of Baroda has also revised its lending rates, making it important for customers with MCLR-linked loans to check their individual loan terms.
Borrowers should review their latest loan statements and confirm whether their interest rate is linked to MCLR or another external or internal benchmark.
Customers should also check their next reset date. This will provide a better indication of when a revised benchmark could affect their loan.
What Borrowers Should Check
Customers of both banks can review several details before determining whether their monthly repayment could change.
First, they should identify the benchmark linked to their loan. Second, they should check the applicable interest rate and reset frequency. Third, borrowers should confirm the next reset date mentioned in their loan documents or account statement.
They should also look at the outstanding principal and remaining repayment period.
These details can help borrowers understand the potential financial impact of a lending rate revision.
Impact on New Borrowers
The effect can be more immediate for customers taking new loans after the revised benchmark becomes applicable.
Banks use their applicable benchmark rates when pricing eligible loans. The final interest rate offered to a borrower can depend on the product, credit profile, loan category and applicable spread.
Therefore, the published MCLR should not automatically be treated as the final interest rate offered to every customer.
Why Lending Rates Matter
Changes in lending rates can influence household budgets, particularly for customers with large home loans, personal loans or other floating rate borrowings.
Even when the immediate EMI increase is small, a higher interest rate can increase the total cost of borrowing if it remains applicable for a long period.
Borrowers should therefore monitor rate revisions rather than focusing only on the monthly EMI.
A borrower may also discuss available options with the bank, such as changing the repayment structure or reviewing whether another benchmark is applicable. Any such decision should be made after considering the costs and conditions involved.
No Immediate Impact for Every Borrower
The most important point for customers is that an MCLR increase does not mean every existing loan EMI will increase immediately.
The impact depends on the individual loan agreement.
Canara Bank's official documentation specifically explains that revised MCLR rates apply to new loans and certain facilities that undergo renewal, review or reset after the effective date.
Therefore, customers should avoid assuming that the latest headline rate directly represents the interest rate currently charged on their loan.
What Borrowers Can Do
Borrowers can check their latest loan statement or contact their bank branch to find out the applicable benchmark, current interest rate and next reset date.
They can then determine whether the latest MCLR revision is likely to affect their EMI or repayment period.
Customers should also keep track of future rate announcements because lending rates can change again depending on market conditions and banks' funding costs.
The latest revisions by Bank of Baroda and Canara Bank highlight the importance of understanding how floating rate loans work.
For borrowers, the key issue is not simply whether MCLR has increased, but whether their particular loan is linked to the revised benchmark and when the next reset is scheduled.
With Canara Bank's latest revision effective August 12, 2026, customers with MCLR-linked loans should review their loan details and seek clarification from the bank if necessary.
Ultimately, whether an individual borrower's EMI rises will depend on the loan's benchmark, reset frequency, outstanding balance, remaining tenure and the revised interest rate applicable to that account.