Indian Overseas Bank (IOB), one of India’s prominent public sector banks, announced on Thursday, September 11, 2025, a reduction in its marginal cost of funds-based lending rate (MCLR) by 5 basis points (bps) for select tenures, effective September 15, 2025.
This move is aimed at reducing borrowing costs for customers with floating-rate loans and aligns with the broader trend of monetary easing by banks to support credit growth amid evolving economic conditions.
Revised MCLR Rates
Following the rate revision, IOB’s key lending rates for affected tenures are:
| Tenure | Old MCLR | New MCLR | Change |
| Overnight | 8.05% | 8.00% | -5 bps |
| One-Year | 8.90% | 8.85% | -5 bps |
| Two-Year | 8.90% | 8.85% | -5 bps |
| Three-Year | 8.95% | 8.90% | -5 bps |
Other MCLRs remain unchanged:
- One-month: 8.30%
- Three-month: 8.45%
- Six-month: 8.70%
The one-year MCLR is especially significant as it serves as a benchmark for many loans, including home loans, personal loans, and other retail credit products.
What is MCLR and Why It Matters
The Marginal Cost of Funds-based Lending Rate (MCLR) is the minimum interest rate below which a bank cannot lend, except in special cases permitted by the Reserve Bank of India (RBI).
MCLR is linked to a bank’s funding costs, including deposits and other borrowings, and is revised periodically based on market conditions. It is a key determinant of floating-rate loans, which adjust periodically with changes in MCLR.
Impact on Borrowers:
- A reduction in MCLR lowers EMI obligations for customers with floating-rate loans.
- Borrowers may see immediate benefits in interest payments once the revised rates come into effect.
- The rate cut is particularly beneficial for home loan and vehicle loan borrowers with longer tenures, easing financial stress amid rising living costs.
Strategic Implications
- The rate cut reflects IOB’s proactive approach to remain competitive in the lending market while supporting credit growth.
- Public sector banks adjusting MCLR often signal broader trends in the banking sector, influencing other banks to reconsider their lending rates.
- The move may stimulate demand for loans, especially in the home loan and MSME sectors, contributing to economic activity.
Expert Take
Banking analysts note that even a small reduction of 5 bps can translate into significant savings for borrowers over long loan tenures. It also indicates the bank’s confidence in liquidity management and its ability to absorb cost adjustments without compromising profitability.
Conclusion
Indian Overseas Bank’s decision to reduce MCLR by 5 bps for key tenures provides a modest but meaningful relief for borrowers, particularly those with floating-rate loans. As banks continue to monitor funding costs and macroeconomic indicators, further rate adjustments may be on the horizon, offering potential benefits to retail and corporate borrowers alike.
Summary
- Event: IOB cuts MCLR by 5 bps for overnight, 1-year, 2-year, and 3-year tenures
- Effective Date: September 15, 2025
- New Rates: One-year MCLR at 8.85%, overnight at 8.00%, two-year at 8.85%, three-year at 8.90%
- Unchanged Rates: One-month, three-month, and six-month MCLRs
- Impact: Lowers borrowing costs for floating-rate loans; reduces EMIs
- Strategic Significance: Enhances IOB’s competitive lending position and supports credit growth
Indian Overseas Bank (IOB), one of India’s prominent public sector banks, announced on Thursday, September 11, 2025, a reduction in its marginal cost of funds-based lending rate (MCLR) by 5 basis points (bps) for select tenures, effective September 15, 2025.
This move is aimed at reducing borrowing costs for customers with floating-rate loans and aligns with the broader trend of monetary easing by banks to support credit growth amid evolving economic conditions.
Revised MCLR Rates
Following the rate revision, IOB’s key lending rates for affected tenures are:
| Tenure | Old MCLR | New MCLR | Change |
| Overnight | 8.05% | 8.00% | -5 bps |
| One-Year | 8.90% | 8.85% | -5 bps |
| Two-Year | 8.90% | 8.85% | -5 bps |
| Three-Year | 8.95% | 8.90% | -5 bps |
Other MCLRs remain unchanged:
- One-month: 8.30%
- Three-month: 8.45%
- Six-month: 8.70%
The one-year MCLR is especially significant as it serves as a benchmark for many loans, including home loans, personal loans, and other retail credit products.
What is MCLR and Why It Matters
The Marginal Cost of Funds-based Lending Rate (MCLR) is the minimum interest rate below which a bank cannot lend, except in special cases permitted by the Reserve Bank of India (RBI).
MCLR is linked to a bank’s funding costs, including deposits and other borrowings, and is revised periodically based on market conditions. It is a key determinant of floating-rate loans, which adjust periodically with changes in MCLR.
Impact on Borrowers:
- A reduction in MCLR lowers EMI obligations for customers with floating-rate loans.
- Borrowers may see immediate benefits in interest payments once the revised rates come into effect.
- The rate cut is particularly beneficial for home loan and vehicle loan borrowers with longer tenures, easing financial stress amid rising living costs.
Strategic Implications
- The rate cut reflects IOB’s proactive approach to remain competitive in the lending market while supporting credit growth.
- Public sector banks adjusting MCLR often signal broader trends in the banking sector, influencing other banks to reconsider their lending rates.
- The move may stimulate demand for loans, especially in the home loan and MSME sectors, contributing to economic activity.
Expert Take
Banking analysts note that even a small reduction of 5 bps can translate into significant savings for borrowers over long loan tenures. It also indicates the bank’s confidence in liquidity management and its ability to absorb cost adjustments without compromising profitability.
Conclusion
Indian Overseas Bank’s decision to reduce MCLR by 5 bps for key tenures provides a modest but meaningful relief for borrowers, particularly those with floating-rate loans. As banks continue to monitor funding costs and macroeconomic indicators, further rate adjustments may be on the horizon, offering potential benefits to retail and corporate borrowers alike.
Summary
- Event: IOB cuts MCLR by 5 bps for overnight, 1-year, 2-year, and 3-year tenures
- Effective Date: September 15, 2025
- New Rates: One-year MCLR at 8.85%, overnight at 8.00%, two-year at 8.85%, three-year at 8.90%
- Unchanged Rates: One-month, three-month, and six-month MCLRs
- Impact: Lowers borrowing costs for floating-rate loans; reduces EMIs
- Strategic Significance: Enhances IOB’s competitive lending position and supports credit growth