HDFC Bank and Bank of Baroda revise MCLR Rate

HDFC Bank reduced its one-month marginal cost lending rate (MCLR) to 8.95 per cent from 9 per cent and cut its two-year MCLR to 9.20 per cent from 9.25 per cent effective June 7. However, Bank of Baroda hiked its one-year MCLR to 9.40 per cent from 9.30 per cent effective June 7.

Earlier this month, private lender ICICI Bank had cut its MCLR rate by 5 basis points. HDFC Bank, State Bank of India and ICICI Bank’s benchmark one-year MCLR stands at 9.15 per cent.

The Reserve Bank of India (RBI) moved its base rate to MCLR because of a more automatic reduction in rates when deposit rates came down. The Central Bank introduced MCLR on December 17 and the guidelines mandated that banks must price incremental loans using MCLR, starting April 1.

Under MCLR, banks need to consider their marginal cost of funds, or the cost incurred on incremental deposits across different maturities. The banks will add their operating costs, the negative carry-over of their cash reserve ratio balances with the RBI and will give out a tenure premium.

The Reserve Bank of India (RBI) clarified in its review meet of June 7 that it will soon review the new lending rule based on marginal cost of funds that became effective from April this year. The transmission of policy into bank lending rates still remains at a status of work in progress. The Central Bank will shortly review the operation of the marginal cost lending rate framework to iron out any issues.