HDFC Bank's loan EMI may rise as lender hikes MCLR across select tenures

HDFC Bank has made changes to its benchmark Marginal Cost of Funds-Based Lending Rates (MCLR) on select tenures, effective as of November 7, 2023. The overnight MCLR has been raised by 5 basis points from 8.60% to 8.65%. The 1-month MCLR of HDFC Bank has increased by 5 basis points to 8.70% from 8.65%.

The 3-month MCLR will be at 8.90%, up by 5 basis points from the previous 8.85%. The 6-month MCLR has been increased to 9.15% from 9.10%. The 1-year MCLR, which is linked to many consumer loans like home and auto, has been kept unchanged at 9.20%. The 2-year and 3-year MCLR has been hiked to 9.25% and 9.30%, respectively.

When comparing HDFC Bank's rates to those of other banks, the 1-year MCLR currently stands at 9.20%. In contrast, ICICI Bank offers 9.00% MCLR on 1-year tenure, while Bank of India has 8.75% rate.

Notably, both of these banks have also recently announced adjustments to their MCLR across various loan maturities.

This shift in lending rates is of significant note, considering the RBI's decision to adopt a vigilant stance on inflation, resulting in the steady maintenance of the repo rate. This approach follows a period of active rate hikes, totalling 250 basis points, undertaken by the Reserve Bank of India (RBI) until a pause in April 2023.

Shaktikanta Das, RBI Governor, in his last policy address, had emphasised that while the repo rates have been raised by 250 basis points, this increase has not been fully transmitted to bank lending and deposit rates.

What this means for borrowers is that there is still room for a potential hike in lending rates. During the period when the RBI increased the repo rate, banks gradually followed suit by raising their lending interest rates, although there was some delay in transmission.

For perspective, when the repo rate increases, lending interest rates follow suit, and when the repo rate decreases, lending interest rates decline as well.