HDFC Bank changes MCLR after RBI raises repo rate, relief likely for some borrowers
HDFC Bank has revised its MCLR, which may ease interest and EMIs for some borrowers, though not every borrower will benefit immediately.
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The Reserve Bank of India (RBI) has decided to raise the repo rate for the first time in about four years. The move will affect borrowers, and monthly EMI burdens could rise. EMIs are already a major monthly expense, so even a small change in interest rates can make a big difference to lakhs of borrowers. Meanwhile, HDFC Bank has also taken an important decision.
HDFC Bank has made a major change to its marginal cost of funds based lending rate (MCLR). Some customers are expected to get relief, but not every borrower will benefit immediately. MCLR is a benchmark rate on the basis of which the interest on linked loans is set. Customers whose loans are linked to MCLR could therefore see the rate cut affect their interest and EMIs.
How much the EMI actually falls will depend on which MCLR tenor a customer's loan is linked to and when its next reset is due. This means that even though the rate has come down, the change in EMI may not be visible right away.
In its policy decision on October 7, the RBI raised the repo rate by 25 basis points, taking it from 5.25 per cent to 5.50 per cent. The impact of the hike is likely to be felt mainly by customers whose floating-rate loans are linked to an external benchmark. The interest and EMIs on such loans could see an effect relatively quickly.
Customers whose floating-rate loans are currently linked to MCLR could benefit from the bank's rate cut. However, a large share of new home loans is linked to an external benchmark or the repo rate. A cut in MCLR alone will therefore not lower the EMI of every home loan borrower.
If your loan is linked to MCLR, your interest rate may change once the bank's new rate comes into effect. But the amount by which the EMI falls will depend on the outstanding loan amount, the remaining tenure, the current interest rate and the reset date. It is therefore not advisable to expect a big cut in EMI by looking at the MCLR change alone. Borrowers should check their loan agreement and their next reset date.
