HDFC Bank, the country’s largest private sector bank, has given a big shock to its customers. Specifically, the bank has made mixed changes in its interest rates (MCLR). Due to this, the EMI of some customers will increase, while that of others will reduce. The bank has increased its 3-year Marginal Cost of Funds Based Lending Rate (MCLR) by 5 basis points (0.05%). This means that if your home loan or any long-term credit facility is linked to MCLR, your monthly loan repayment cost (EMI) may increase in the future. Following the increase in the bank’s 3-year MCLR by 5 basis points, the rate has now increased from 8.55% to 8.60%.
Loan Tenure Old MCLR Rate New MCLR Rate Change Overnight or One Month 8.10% 8.05% 0.05% (Cheap) 3 Month 8.20% 8.15% 0.05% (Cheap) 6 Month 8.35% 8.30% 0.05% (Cheap) 1 Year-2 Years 8.35% / 8.45% Fixed No Change 3 Sal 8.55% 8.60: 0.05% (expensive)
Who will not be affected?
The bank has kept its 1-year and 2-year MCLR rates unchanged at 8.35% and 8.45%, respectively. This means that if your home loan is linked to a 1-year MCLR, there will be no change in your EMI as the 1-year rate remains fixed at 8.35%. However, if you have taken a loan for a longer tenure – especially up to 3 years, the interest rates now applicable may be costlier based on the revised 8.60% MCLR. Meanwhile, personal loan interest rates for new customers start from 10.9%. If your loan is based on fixed interest rate, then these changes made by the bank will not have any impact on your EMI.
What is MCLR?
MCLR (Marginal Cost of Funds Based Lending Rate) is the minimum interest rate below which no bank can give you a loan. Whenever a bank increases or decreases its MCLR, the interest rate applicable on your loan also changes in direct proportion to that change. The Reserve Bank of India (RBI) started this system in 2016, with the aim of increasing transparency and ensuring that customers also get the benefit of changes in interest rates. MCLR is determined on the basis of the bank’s ‘cost of funds’ (cost of money). Earlier, banks used to set interest rates as per their wish; However, after MCLR is implemented, they now take decisions based on ‘Cost of Funds’. From October 2019, new loans are linked to the EBLR (External Benchmark Lending Rate), which is directly linked to the repo rate.