HDFC Bank cuts MCLR by 5 bps in select maturities; will it impact borrower's EMI?

HDFC Bank MCLR Rates Cut: In a significant move for home loan borrowers, HDFC Bank has announced a reduction in its Marginal Cost of Funds Based Lending Rates (MCLR) by 5 basis points. After the cut, the private sector bank's MCLR will now range between 9.15 per cent and 9.45 per cent.

Which MCLR rates have been reduced?

The private-sector lender, HDFC Bank, has reduced the MCLR by 0.05 per cent across several tenures, including:
- Overnight loans
- 6-month loans
- 1-year loans
- 3-year loans

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However, loans with other tenures remain unaffected by this rate cut.

When did the new MCLR rates come into effect?

According to the official website of HDFC Bank, these new MCLR rates came into effect on January 7, 2025.

What is MCLR?

MCLR, or Marginal Cost of Funds Based Lending Rate, is the minimum interest rate below which banks cannot offer loans to customers. It has replaced the previous base rate system, ensuring that loan rates are more reflective of the bank's marginal cost of borrowing.

Why does an MCLR increase lead to higher loan costs?

Since MCLR is the minimum benchmark rate, any increase in this rate directly raises the interest rates on loans. As a result, when MCLR rises, loans like home loans, vehicle loans, and others tied to it become more expensive for borrowers.

When will EMI rates adjust after MCLR changes?

It is important to understand that EMI adjustments do not occur immediately when MCLR changes. The change in EMI will take effect only on the reset date of the loan, as per the loan agreement. This means that borrowers will notice the new EMI rates after their scheduled reset date, not right away.