Loan EMIs to rise! Ahead of RBI decision, HDFC Bank hikes MCLR

Ahead of the Reserve Bank of India (RBI) monetary policy decision, HDFC Bank has increased its Marginal Cost of Funds-Based Lending Rates (MCLR) across select tenors by five basis points. With the latest increase in the rate of interest, loan EMIs linked to MCLR are expected to rise.

The Marginal Cost of the Fund-Based Lending Rate or the MCLR is the minimum interest rate a financial institution needs to charge for a specific loan. It dictates the lower limit of the interest rate for a loan. This rate limit is set in stone for borrowers unless specified otherwise by the Reserve Bank of India.

As of December 7, 2023, the revised rates for overnight MCLR stand at 8.70 per cent; 8.75 per cent for one month cent; 8.95 per cent for three months, and 9.15 per cent for six months.

The one-year MCLR remain unchanged at 9.20 per cent, and these latest rates will take immediate effect.
Introduced on April 1, 2016, MCLR functions as a benchmark to counter the base rate system. The banks link their deposit and loan rates to these MCLR tenors.

However, since October 2019, banks have been mandated to link their retail floating rates to an external benchmark, such as the repo rate, ensuring better transmission of policy rate changes. Borrowers have the option to refinance MCLR-linked loans to repo-linked loans for potentially more transparent and efficiently priced interest rates.

Notably, in its last four bi-monthly monetary policy meetings, the Reserve Bank of India (RBI) kept the repo rate unchanged. The central bank's last repo rate hike occurred in February, when the rate was raised to 6.5 per cent.

HDFC Bank has also revised the interest rates for fixed deposits (FDs) exceeding Rs 5 crore. The interest rates for fixed deposits (FDs) with a tenure of one year to 15 months have been reduced. For FDs exceeding Rs 100 crore to Rs 500 crore, the interest now stands at 7.30 per cent from 7.35 per cent earlier. The revised rates will be effective from December 8, 2023.

HDFC Bank