In a recent development for home loan borrowers, HDFC Bank has announced a reduction in its Marginal Cost of Funds Based Lending Rates (MCLR) by 5 basis points for select loan tenures. The revised MCLR rates will be implemented from January 7, 2025. The reduction aims to make borrowing affordable and provide relief to customers seeking loans from the private-sector lender.
MCLR Reduction Details
Loans with tenures apart from short tenures will remain the same. However the new rates are expected to benefit borrowers seeking loans across shorter durations, such as overnight and 6-month tenures, as these rates are typically linked to lending products like home loans and personal loans.
The MCLR reduction is applicable to loans with select tenures:
Overnight Loans- 9.15 per cent
1 Month Loans- 9.20 per cent
3 Month Loans- 9.30 per cent
6 Month Loans- 9.40 per cent
2 Year Loans- 9.45 per cent
3 Year Loans- 9.45 per cent
What is MCLR?
MCLR, or Marginal Cost of Funds Based Lending Rate, is the minimum rate at which banks are allowed to provide loans to their customers. MCLR was introduced to replace the previous base rate system which was in use till 2016. The new lending rate was introduced to offer transparency and reflect the actual cost of borrowing for banks. MCLR factors in the marginal cost of funds, operating costs, and a reasonable profit margin, hence making it more sensitive to changes in market conditions.
Impact of MCLR Reduction
The latest MCLR reduction is likely to result in lower interest rates for consumers with MCLR-linked loans. However, it is crucial to remember that this adjustment will not affect existing loan EMIs. The new rates will be applicable only when the EMI’s reset date arrives. While the reduction may not be dramatic, it still provides a timely opportunity for borrowers to benefit from a slightly lower cost of borrowing.
Why Do MCLR Changes Matter?
Any rise in the MCLR can increase lending rates, which directly increase borrowers' EMIs. In contrast, a drop in MCLR often results in cheaper EMIs and interest payments throughout the repayment cycle of the loan. As a result, consumers with loans based on this benchmark rate closely monitor changes in MCLR. In conclusion, the MCLR cut by HDFC Bank offers a modest but much needed relief to borrowers. Those looking to take a home loan or a personal loan in the near future will also benefit from the revised lower rates, provided their loan is linked to MCLR.
