HDFC Bank Raises Lending Rates Amid RBI's Watchful Eye On Inflation

HDFC Bank has announced adjustments to its Marginal Cost of Funds-Based Lending Rates (MCLR) on select tenures, effective November 7, 2023, as the Reserve Bank of India (RBI) maintains a vigilant stance on inflation.

In a move that could impact borrowers, HDFC Bank has raised its overnight MCLR by 5 basis points from 8.60% to 8.65%. The 1-month MCLR has also increased by 5 basis points, now standing at 8.70% compared to the previous 8.65%. The 3-month MCLR has been elevated to 8.90%, up by 5 basis points from the prior 8.85%. The 6-month MCLR has seen a similar hike, now at 9.15% from 9.10%. Notably, the 1-year MCLR, which affects many consumer loans such as home and auto, remains unchanged at 9.20%. The 2-year and 3-year MCLR has been raised to 9.25% and 9.30%, respectively.

Comparing HDFC Bank's rates with other financial institutions, the 1-year MCLR stands at 9.20%. In contrast, ICICI Bank offers a 1-year MCLR of 9.00%, while Bank of India has a rate of 8.75%. Both ICICI Bank and Bank of India have also recently adjusted their MCLR rates.

This move by HDFC Bank is of considerable significance, as it aligns with the RBI's cautious approach to inflation. The RBI has maintained the repo rate, a key benchmark rate, following a series of rate hikes totalling 250 basis points, which concluded in April 2023. In the latest policy address, Shaktikanta Das, the RBI Governor, highlighted that while the repo rates have been increased, this hasn't been fully reflected in bank lending and deposit rates.

What this means for borrowers is that there is still room for potential lending rate hikes. When the repo rate increases, lending interest rates tend to follow suit, albeit with some delay in transmission. Conversely, when the repo rate decreases, lending interest rates typically decline.

The adjustment of MCLR rates by HDFC Bank, ICICI Bank, and Bank of India indicates that borrowers should keep a close eye on lending rates in the coming months.