HDFC Bank, India’s biggest private lender, has bumped up its marginal cost-based lending rates (MCLR) by up to 15 basis points, making some floating-rate loans more expensive, effective May 8.

What Happened? The key change comes in the form of an upward adjustment to the one-year MCLR, which is considered a vital benchmark for most loans. The MCLR serves as the minimum lending rate, below which a bank cannot lend to customers. The rate has been raised from 8.95% to 9.05%, signaling a shift in the lending landscape.

The overnight MCLR has also seen an uptick, climbing from 7.80% to 7.95%. The bank’s two-year MCLR has also been revised upwards to 9.10%, while the three-year MCLR will now be higher at 9.20%.

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These adjustments will make personal and vehicle loans with floating interest rates linked to the MCLR more expensive as equated monthly installments (EMIs) will get more expensive. As a result, individuals may experience changes in their loan repayments, potentially affecting their monthly budgets.

HDFC Bank’s decision to revise its MCLR rates is the latest amid a broader trend among other banks in the industry even though the Reserve Bank of India left repo rates unchanged at its most recent policy meeting in April. Notably, the Bank of Baroda and Canara Bank have also adjusted their lending rates upwards.

Indian banks are likely to raise MCLR rates by 100-150 basis points in FY24 over the previous year, credit rating agency India Ratings and Research has said. It also said that the upcoming period of tight liquidity amid a high-interest-rate environment could prove challenging for lenders without enough liquidity.

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