HDFC Bank has raised its marginal cost of funds-based lending rate (MCLR) by 5 to 15 basis points across all seven reported tenures, increasing the potential borrowing cost for customers whose loans are linked to the benchmark. The revised rates took effect on November 7, according to a report by Aaj Tak Business.
Following the revision, HDFC Bank’s MCLR has moved into a range of 7.85% to 8.70%, compared with the earlier range of 7.75% to 8.55%. A basis point is equal to 0.01 percentage point. The increase means that the interest rate on some floating-rate loans may rise when their contractual reset date arrives.
The largest increase, 15 basis points, has been reported for the six-month, one-year, two-year and three-year MCLR tenures. Rates for the other reported tenures have increased by between 5 and 10 basis points. The change can affect home loans, personal loans, auto loans and other credit facilities that remain linked to MCLR.
The immediate impact will vary between borrowers. Not every HDFC Bank customer will see an increase in their equated monthly instalment, or EMI, because the effect depends on the benchmark specified in the loan agreement and the date on which the interest rate is scheduled to reset. Loans linked to other benchmarks will not automatically be affected by this particular MCLR revision.
For illustration, the report calculated that a borrower with a Rs 20 lakh MCLR-linked loan for 20 years could see the interest rate rise from 8% to 8.15%. On that example, the monthly EMI would increase from Rs 16,729 to Rs 16,916, or by about Rs 187 a month. The actual change for an individual borrower will depend on the outstanding principal, remaining tenure, applicable spread and reset terms in the loan contract.
The revision highlights the importance of the benchmark and reset mechanism in floating-rate borrowing. Two customers who have loans with the same bank may experience different changes if their agreements are tied to different benchmarks or carry different reset dates. Borrowers therefore need to check their sanction letter or loan agreement to establish the applicable benchmark and the next reset date.
For home-loan customers, even a small change in the lending rate can affect the choice between a higher EMI and a longer repayment period, subject to the lender’s terms. The reported HDFC Bank revision, however, establishes the change in MCLR and the possible effect on MCLR-linked loans; it does not mean that every borrower will face an immediate EMI increase.
The revised MCLR rates are effective from November 7. Customers whose loans are linked to the affected tenures will receive the impact according to the reset conditions recorded in their respective loan agreements.
