Personal Loan EMIs will go down

Published : 22 June 2023
Updated : 24 May 2024
Personal Loan EMIs will go down

Introduction

There is a sudden decrease in the EMI for Personal Loan by HDFC Bank. The article below will make you understand the recent news about HDFC Bank. 

For some tenures, HDFC Bank lowered its Marginal Cost Based Lending Rate (MCLR) by as much as 85 basis points. Its website states that the higher lending rates took effect on April 10, 2023.

Its overnight MCLR dropped to 7.80% as the rate was lowered by 85 basis points. It was 8.65 percent earlier. According to the HDFC Bank website, the one-month MCLR decreased from 8.65 to 7.95 percent. An enormous 70 basis points cut it.

Tenor 

MCLR on March 07, 2023

MCLR on April 23, 2023

Overnight 

8.65%

7.80%

1 Month 

8.65% 

7.95%

3 Months 

8.70%

8.30%

6 Months 

8.80%

8.70%

1 Year

8.95%

8.95%

2 Years 

9.05%

9.05%

3 Years 

9.15%

9.15%

The action was taken following the Reserve Bank of India's (RBI) decision on April 6, 2023, to maintain the repo rate at 6.5 percent. "The RBI's decision to leave the repo rate steady is a welcome surprise. Although it won't result in any immediate benefits for them, it will also bring about a great deal of relaxation, especially for the debtors, according to Yogesh Chande, Partner at Shardul Amarchand Mangaldas & Co. 

Given that the majority of home loans are obtained through HDFC Limited, the MCLR reduction won't have any effect on the borrowers of HDFC home loans. Older borrowers of floating-rate personal and auto loans who have loans tied to the MCLR will be the only ones to benefit from the reduction in the MCLR.

Many retail loans obtained after 31 March 2016 were priced using the MCLR before implementing the External Benchmark based Lending Rate (EBLR) on October 1, 2019.

 How does the MCLR impact loans, and what is it?

The minimal interest rate that a financial institution charges for a particular loan is known as the Marginal Cost-Based Lending Rate. Typically, it denotes the loan's lowest possible interest rate. When determining the MCLR, a number of factors are taken into account, including deposit rates, repo rates, operational costs, and the cost of maintaining the cash reserve ratio.

Conclusion 

While sanctioning loans, the banks generally take into account the MCLR prevailing on that day. They also specified the reset dates of the loans. Do note that the interest rate of your MCLR-linked loan will change to the new MCLR declared on the reset date. The periodicity for a reset is generally one year or lesser depending on the loan agreement with the bank.

The loans linked to MCLR come with a spread. It means the amount or margin that the borrowers have to pay over the MCLR.