HDFC Bank has increased its Marginal Cost of Funds-based Lending Rate by up to 10 basis points [1] across selected loan tenures.

This move increases the cost of borrowing for millions of customers in India. Higher lending rates typically lead to increased monthly installments for borrowers, reducing disposable income for households already facing inflationary pressures.

The rate hike affects several categories of credit, including home, auto, and personal loans. A spokesperson for HDFC Bank said, "HDFC Bank has increased its MCLR by up to 10 basis points across select loan tenures" [1].

This adjustment follows a June 5, 2024, policy meeting by the Reserve Bank of India (RBI). During that meeting, the RBI kept the repo rate unchanged at 6.50% [2]. While the central bank maintained its benchmark rate, the decision was made amid persistent inflation and global economic uncertainty [3].

Banks use the MCLR as a benchmark for pricing loans. When a bank raises this rate, it often passes the cost on to the consumer. In this instance, HDFC Bank adjusted the rate to manage its own funding costs despite the RBI's pause on the repo rate [3].

Industry analysts said that customers will now have to pay higher EMIs for home loans, car loans, or personal loans compared to before [1]. The shift highlights a divergence between central bank policy and the actual cost of credit for consumers at the retail level.

“HDFC Bank has increased its MCLR by up to 10 basis points across select loan tenures.”

The divergence between the RBI's decision to hold the repo rate steady and HDFC Bank's decision to raise its MCLR indicates that commercial banks may be feeling pressure from funding costs that the central bank's benchmark rate does not fully address. For Indian consumers, this means that a 'pause' from the RBI does not guarantee stable loan repayments, as private lenders may still increase rates to protect their margins against inflation.