The beginning of September 2025 has brought welcome news for borrowers, with two of India’s leading public sector lenders—Punjab National Bank (PNB) and Bank of India (BoI), announcing cuts in their lending rates. Both banks have reduced their Marginal Cost of Funds-based Lending Rate (MCLR) across key tenures, making home loans, personal loans, and other borrowing products more affordable.

These rate cuts come at a time when the Reserve Bank of India has held the repo rate steady, signalling that banks are proactively easing the financial burden on customers. For existing borrowers, the reductions translate into lower Equated Monthly Instalments (EMIs) or the possibility of shorter repayment tenures, depending on loan agreements. For new customers, this adjustment improves the affordability of fresh loans. This article explores the details of the revised MCLR structure, its direct impact on EMIs, and what it means for individuals planning to borrow or refinance loans.

Understanding the September 2025 MCLR Reductions

What’s Happened

• Punjab National Bank (PNB) has trimmed its Marginal Cost of Funds-based Lending Rate (MCLR) by up to 15 basis points (bps) across various tenures, effective from 1 September 2025. Notable reductions include:
  • Overnight MCLR: from 8.15% to 8.00%
  • 1-month: 8.30% → 8.25%
  • 3-month: 8.50% → 8.45%
  • 6-month: 8.70% → 8.65%
  • 1-year (key for many loans): 8.85% → 8.80%
  • 3-year: 9.15% → 9.10%
• Bank of India (BoI) has lowered its MCLR by 5 to 15 bps across most tenures, except for overnight, which remains unchanged:
  • Overnight: remains at 7.95%
  • 1-month: 8.40% → 8.30%
  • 3-month: 8.55% → 8.45%
  • 6-month: 8.80% → 8.70%
  • 1-year: 8.90% → 8.85%
  • 3-year: 9.15% → 9.00%

Despite the Reserve Bank of India keeping the repo rate steady at 5.5% during its August 2025 Monetary Policy Committee meeting, both banks have voluntarily passed on interest relief to borrowers through these MCLR reductions.

Why These Cuts Matter to You

What Is MCLR?

MCLR stands for Marginal Cost of Funds-based Lending Rate. It serves as a benchmark that determines the minimum interest rate a bank can offer on floating-rate loans, such as home loans, personal loans, and auto loans.

Impact on Your EMIs

Borrowers with loans linked to MCLR will likely see lower EMIs (Equated Monthly Instalments) or the option to shorten the loan tenure, depending on the loan agreement and reset cycle.

Example Scenario:

Imagine you have a ₹30 lakh home loan at 9% interest over 20 years. Your EMI is approximately ₹26,992.
If your rate drops by 10 bps (0.10%), your EMI could decrease by around ₹200, bringing it to approx. ₹26,789, a saving of ₹200 each month.

Over a longer loan tenure, even seemingly small percentage cuts translate into substantial total savings.

Home vs Personal Loans

• Home loans: Commonly linked to the 1-year MCLR, so cuts here will directly impact EMIs.
• Personal loans: Often tied to shorter tenors (1-month, 3-month), and reductions will still benefit, albeit on a potentially smaller scale each month.

Broader Landscape: How This Compares

This isn’t the first time PNB and BoI have reduced rates in 2025:

• In July 2025, both trimmed MCLR by 5 bps across all tenures (PNB’s 1-year rate dropped from 8.95% to 8.90%; BoI’s from 9.05% to 9.00%).
• Earlier in May 2025, they were among a group of public sector banks that reduced MCLR to provide relief to borrowers.

This September reduction builds on a trend of improving rate transmission and growing borrower support.

What You Should Do Now

1. Check Your Loan Type

• Floating-rate loans linked to MCLR: You stand to benefit directly.
• New floating-rate loans are usually tied to the External Benchmark Lending Rate (EBLR), which moves differently—confirm which one applies to your loan.

2. Monitor EMI or Tenure Changes

Banks generally adjust EMIs or loan tenure during your loan’s reset date. Contact your loan officer to find out how and when this will apply to your account.

3. Consider Switching or Refinancing

If your loan is under MCLR and beneficial, you could request a switch to the more favourable EBLR (if available). Alternatively, compare EBLR-linked offers from other banks to see if switching would be advantageous.

4. Plan Your Finances

• Short-term relief: Even modest cuts can ease your monthly budget.
• Long-term gains: Over the full term, the accrued savings can be significant—consider making pre-payments to reduce interest burden further.

Effective Date: 1 September 2025 for both banks.

PNB and Bank of India’s moves to lower MCLR in September 2025 offer welcome relief to loan holders—especially those with floating-rate home or personal loans. While each basis point reduction may seem small, collectively, they can shrink your monthly commitments and add up to sizeable long-term savings.

To make the most of this opportunity, verify your loan type, track EMIs or tenure resets, and consult your bank on possible transitions to better benchmarks.