HDFC Bank Cuts MCLR Ahead Of RBI Policy: What It Means For Loan Borrowers?

HDFC Bank has revised its Marginal Cost of Funds-based Lending Rate (MCLR) for select short-term tenors, with the changes coming into effect from April 7, 2026. The bank has lowered its overnight and one-month MCLR from 8.15% to 8.10%. Similarly, the three-month MCLR has been reduced from 8.25% to 8.20%. However, rates for the six-month and one-year MCLR continue at 8.35%, while the two-year and three-year tenors stand at 8.45% and 8.55%, respectively.

This revision comes just ahead of the upcoming monetary policy meeting of the Reserve Bank of India (RBI), which is widely expected to take key decisions on interest rates. The timing is particularly important as policymakers assess global uncertainties, including the ongoing US-Iran conflict, and their potential impact on inflation, liquidity, and overall economic stability.

What Is MCLR? Why It Matters?

The Marginal Cost of Funds-based Lending Rate (MCLR) is the minimum interest rate below which banks are not allowed to lend, except in specific cases permitted by the RBI.

MCLR is calculated based on four key components - the marginal cost of funds, the negative carry on the Cash Reserve Ratio (CRR), operating expenses, and a tenure premium. Banks review and update these rates periodically, usually every month, based on changes in their cost of funds, which includes deposits, borrowings, and expected returns on net worth.

MCLR Impact On Borrowers

MCLR serves as a benchmark for a wide range of retail and corporate loans, including home loans, personal loans, and business loans. When a borrower opts for an MCLR-linked loan, the applicable interest rate is determined by adding a spread (or markup) to the prevailing MCLR.

Any revision in MCLR directly affects borrowers, but only after the reset period specified in their loan agreement. If the bank reduces its MCLR, borrowers may benefit from lower interest rates, which in turn can reduce their Equated Monthly Instalments (EMIs). On the other hand, an increase in MCLR would lead to higher borrowing costs and increased EMIs.

How MCLR Differs From Repo Rate?

Understanding the difference between MCLR and the repo rate is crucial for anyone planning to take a loan. While MCLR is set internally by banks, the repo rate is determined by the RBI and serves as a key monetary policy tool to control inflation and regulate liquidity in the financial system.

When the RBI lowers the repo rate, it becomes cheaper for banks to borrow funds from the central bank, potentially enabling them to reduce their lending rates. Conversely, an increase in the repo rate raises borrowing costs for banks, which may lead to higher lending rates for customers.

For borrowers, especially home loan applicants, a cut in the repo rate can translate into more affordable loans over time. However, the actual benefit depends on how quickly and effectively banks pass on the rate changes through mechanisms like MCLR.