Loan rates: HDFC Bank hikes MCLR for select short-term tenures; check details

New loan rates: Private lender HDFC Bank has implemented revisions to its Marginal Cost of Funds-Based Lending Rates (MCLR) for select short-term tenures effective from November 3, 2024. The revision includes an increase of up to 5 basis points (bps) and applies specifically to the overnight, one-month, and three-year tenures.

Post-revision, the overnight MCLR has been adjusted to 9.15% from 9.10%, while the one-month MCLR now stands at 9.20% as opposed to 9.15%. Similarly, the three-year MCLR has been elevated to 9.50% from its previous rate of 9.45%.

It is noteworthy that apart from the aforementioned tenures, there have been no modifications in the rates for other tenures. The three-month MCLR remains static at 9.30%, whereas both the six-month and one-year MCLRs continue to be pegged at 9.45%. Likewise, the two-year MCLR maintains its position at 9.45%.

The latest adjustment in the Marginal Cost of Funds-based Lending Rate (MCLR) has been announced. As per the new structure, the overnight rate is set at 9.15%. The one-month MCLR is now 9.20%, while the three-month rate has been adjusted to 9.30%.

The six-month MCLR is fixed at 9.45%, which is consistent with the one-year and two-year rates, both also at 9.45%. The three-year MCLR sees a slight increase and is now at 9.50%.

The updated MCLR structure is as follows:

Overnight rate: 9.15%
One-month rate: 9.20%
Three-month rate: 9.30%
Six-month rate: 9.45%
One-year rate: 9.45%
Two-year rate: 9.45%
Three-year rate: 9.50%

MCLR vs Base rate

The Marginal Cost of Funds-Based Lending Rate (MCLR) is the minimum interest rate at which banks are allowed to lend, as stipulated by the Reserve Bank of India (RBI) in 2016 to replace the base rate system. 

Banks decide on the MCLR by considering the structure and methodology employed, which ultimately benefits borrowers. In essence, the MCLR represents an upgraded version of the base rate.

The determination of the final loan rate for borrowers is predicated on a risk-based approach that factors in distinct elements such as the marginal cost of funds instead of the overall cost of funds. Unlike the base rate, the repo rate is taken into consideration in calculating the marginal cost.

When computing the MCLR, banks are mandated to incorporate all interest rates paid during fund mobilization. Unlike the base rate where the loan tenure was not a significant factor, banks must now account for a tenor premium in the case of MCLR. This adjustment allows banks to levy higher interest rates on prolonged loan terms.

HDFC Bank has adjusted its MCLR in line with the RBI's decision to maintain the benchmark lending rate at 6.5% for the tenth consecutive meeting.

Changes in MCLR rates will impact borrowers with loans linked to MCLR, leading to fluctuations in their loan EMIs. However, for individuals with loans obtained before 2016, the base rate or Benchmark Prime Lending Rate (BPLR) will still be applicable.

When there is an increase in MCLR, EMIs for various loan types like home, personal, and business loans will also see a corresponding rise.