After RBI repo rate pause, HDFC Bank cuts MCLR by up to 85 bps giving some respite to borrowers

Days after the Reserve Bank of India (RBI) announced a pause in the rate hike cycle,  HDFC bank has slashed the marginal cost of funds-based lending rate (MCLR) by up to 85 basis points for loans of short tenures.

HDFC Bank has cut MCLR by 85 bps to 7.80 per cent. For a shorter tenure, of one month, the rate has been reduced by 70 bps to 7.95 per cent. Meanwhile, for loans taken for 3 months, the rate has been slashed by 40 bps to 8.30 per cent and for the loans with a tenure of 6 months, the rate has been reduced by 10 bps to 8.70 per cent. 

However, HDFC Bank has left the rates of long-term loans unchanged. The rate for the loans with tenure of 1-year, 2-year, and 3-year tenures will continue to be at 8.95 per cent, 9.05 per cent, and 9.15 per cent, respectively. The bank notified that the new rates will be effective from April 10, 2023.

MCLR is the minimum interest rate that can be charged for a loan.

HDFC Bank had last increased its MCLR in March 2023 by 5 bps across loan tenures to between 8.65 per cent-9.15 per cent per annum. This move has come after RBI kept the repo rate unchanged.

However, this MCLR reduction will not have any impact on HDFC bank's home loan borrowers because most of the home loans are sourced through their parent concern HDFC Limited. Only old personal loans and auto loans are linked to the MCLR rate, so borrowers of these loans will get some relief.

The Marginal Cost Based Lending Rate is the minimum interest rate that the bank charges for a specific loan. It usually indicates the lower limit of the interest rate for a loan. The MCLR depends on several factors which include deposit rates, repo rates, operating costs, and the cost of maintaining the cash reserve ratio. 

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