India’s largest private sector bank, HDFC Bank, has raised its Marginal Cost of Funds-Based Lending Rate or MCLR for some loan tenures, meaning EMIs for customers will now be higher.
HDFC Bank MCLR Hike
Effective December 7, 2024, HDFC Bank increased the MCLR overnight by 5 bps to 9.20% from 9.15%. These changes apply to loans of the following types: Some home, auto, and personal loans are tied to the overnight MCLR.
Effect on Borrower EMIs
An increase in MCLR directly affects the interest rates of floating-rate loans, and the EMIs for existing borrowers go up. As an example, a home loan of ₹50 lakh for 20 years at the earlier rate of 9.15% had an EMI of about ₹45,485. The new rate of 9.20% takes the EMI to about ₹45,735, or ₹250 more per month.
Comparison with Other Tenures
While the overnight MCLR has been adjusted, HDFC Bank has maintained the MCLR for other tenures:
- One-month MCLR: 9.20%
- Three-month MCLR: 9.30%
- Six-month MCLR: 9.45%
- One-year MCLR: 9.45%
- Two-year MCLR: 9.45%
- Three-year MCLR: 9.50%
These rates remain unchanged as of December 7, 2024.
Understanding MCLR
The MCLR is the lowest rate at which banks are allowed to lend as mandated by the Reserve Bank of India. It reflects the cost of funds for banks and gets affected by factors such as the repo rate of RBI, deposit rates, and operating costs. Changes in MCLR affect the interest rates of loans with floating rates, impacting the EMIs of the borrowers.
Advice for Borrowers
The rate hike should increase the EMIs of borrowers whose loans are pegged to the overnight MCLR. It would be wise to go through loan agreements and find out the reset periods, so that changes in MCLR can be anticipated with regard to repayment schedules. Options like part-prepayment or refinancing at perhaps lower rates can be explored to manage the increased burden of finance.
In summary, HDFC Bank’s last MCLR revision means costlier borrowing for some loans, and the borrower needs to be aware of these changes, manage their loan repayments proactively, and help reduce financial strain.
