MCLR traveled; How much will EMIs for home loans and car loans increase?

HDFC Babk MCLR rate increase: India’s largest private sector lender, HDFC Bank, has increased its MCLR across the board, the bank said in a notification. The marginal cost of lending rate, or MCLR, a key point in deciding loan interest, was raised by 25 basis points. Here, it should be noted that a basis point is equivalent to one hundredth of a percentage point. This means that loan interest will increase by 0.10% with the increase in HDFC Bank’s MCLR rates. The move comes nearly a week after the Reserve Bank of India raised its key rates to fight inflation in the country.

HDFC Bank’s MCLR rate hike will mean that loan interest for new and existing borrowers is expected to increase, including monthly equivalent payments (EMI) for home loans, car loans and any other marginal cost related loans. This is a direct result of the RBI increasing its repo rates, as any change in the repo rate will also affect the marginal cost and therefore change the MCLR.

Here is the MCLR by tenor in effect as of May 7, 2022, according to the HDFC Bank website:

Overnight: old rate — 6.90%; New rate — 7.15%

One month: old rate — 6.95%; New rate — 7.20%

Three months: old rate — 7.00%; New rate — 7.25%

Six months: old rate — 7.15%; New rate 7.35%

One year: old rate — 7.25%; New rate 7.50%

Two years: old rate — 7.35%; New rate 7.60%

Three years: old rate — 7.45%; New rate 7.70%

“The marginal cost of fund-based lending rate or MCLR is the minimum interest rate that a financial institution must 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 otherwise specified by the Reserve Bank of India,” HDFC Bank said on its website.

In a surprise move on May 4, the Reserve Bank of India (RBI) raised its key repo rate to 4.40%, by 40 basis points to fight inflation, which has remained above the benchmark. target of 6% over the period in recent months. Following this, banks raised their MCLR rates for the first time in three years. HDFC Bank’s MCLR hike comes days after State Bank of India (SBI), Bank of Baroda, Axis Bank and Kotak Mahindra Bank also announced similar moves.

The MCLR or marginal cost of lending rate is a benchmark interest rate, which is the minimum interest rate that banks are allowed to lend to their customers. With the increase in MCLR, HDFC Bank home borrowers and other borrowers may not be satisfied as interest is most likely to increase.

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