A day before the Reserve Bank of India's (RBI) monetary policy review, Bank of Baroda has announced that it has hiked its marginal cost-based lending rate (MCLR) by 5 basis points with effect from 7 June, 2018. Bank of Baroda is the latest lender to raise rates in the past few days.

Just last week, State Bank of India, ICICI Bank, Kotak Mahindra Bank, and Union Bank of India all raised rates.

According to the Bank of Baroda's filing with the Bombay Stock Exchange's filing, MCLR

Effective from June 7, 2018 will be as follows:

Other banks that have raised rates

Recently, SBI has hiked the MCLR rate by 10 basis points just a couple of days before the monetary policy across all tenors. Similarly, PNB has also hiked MCLR rate by 5-10 basis point for the selected tenors.

In the private sector, Kotak Mahindra Bank has also raised its MCLR. The bank's one year MCLR rate now stands at 8.90 percent.

What it means for borrowers ?

An increase in MCLR would normally translate into increase in interest payable by borrowers unless the bank reduces its margin on loans to absorb this increase.

Clearly, new home loan borrowers hoping for some reduction in interest rates and thereby in their EMI burden need not to wait anymore.

For existing borrowers, the hike in MCLR will impact their EMIs when the reset dates arrive for their loans. The reset date is set by between the bank and the borrowers as per the loan agreement which is usually 6 months or one year. The future EMIs (till next reset date) are calculated on the basis of the MCLR rate plus margin effective on the reset date.

According to RBI's mandate, all loans including home loans taken after April 1, 2016 are to be linked with MCLR. The banks are free to ask for a mark-up over and above the MCLR. However, the rate charged on the loans cannot be less than the MCLR.