India's largest housing finance company HDFC has increased its retail prime lending rate (RPLR) on housing loans, on which its adjustable rate home loans (ARHL) or floating rates are benchmarked, by 5 basis points. The new rates come into effect from today, a move that will lead to an increase in EMIs for borrowers.
Today, state-owned Punjab National Bank (PNB) also raised its marginal cost of funds-based lending rate by 15 basis points. The new rates are effective from June 1, PNB said in a regulatory filing. Many lending institutions have recently hiked their lending rates after an off-cycle rate increase by the Reserve Bank in May. The central bank hiked the repo rate - at which it lends short-term money to banks - by 40 basis points to 4.40%.
With the revision, PNB's one-year MCLR rate has increased to 7.40% from 7.25%earlier. With this increase, EMIs will go up for those borrowers who have availed loans on MCLR.
The above chart shows overnight, one-month and three-month MCLR rising by 15 basis points to 6.75%, 6.80% and 6.90%, respectively. The six-month MCLR increased to 7.10% while three-year MCLR increased by 15 basis points to 7.70%.
Recently, many banks such as the State Bank of India and Bank of Baroda have hiked their marginal cost of funds-based lending rate (MCLR) across tenures.
All existing floating rate bank loans are linked to the MCLR or the external benchmark-based lending rate (EBLR) or the base rate.
For borrowers whose loans are linked with an existing MCLR-linked floating rate loan, these upward revision in loan rate will increase their loan EMIs on the re-set date.
The MCLR was introduced in April 2016 to replace an earlier base rate system. Following an RBI directive in 2019, all retail loans (such as home, car, personal and education loans) issued since 1 October 2019 have, however, had to be linked only to the EBLR.
Banks calculate their MCLR by taking into account factors such as its incremental cost of raising funds (say, via deposits) and operating expenses, among others.
