HDFC Bank has reduced its marginal cost of fund-based lending rate (MCLR) by 10 basis points across various tenures, effective Monday. The revised MCLR range now stands at 9.10-9.35%. The one-year MCLR, which is commonly used for pricing corporate loans, has decreased to 9.30% from 9.40%. This indicates that the bank’s cost of fund has decreased over the past two months, since the Reserve Bank of India (RBI) announced its first policy rate cut in five years.
The reduction in MCLR comes two days before the RBI is scheduled to announce its monetary policy, during which it is expected to cut the repo rate by 25 basis points to 6.00%. HDFC Bank’s move is seen as a precursor to the expected rate cut, as the bank is passing on the benefit of lower costs to its customers.
The bank had previously hiked MCLR by 5 basis points on its overnight tenure on the same day as the RBI’s last rate cut in February. Last week, HDFC Bank discontinued its special deposit scheme, which offered higher rates for longer-term deposits. The bank is now offering 7% on these deposits.
The transmission of regulatory rate cuts is typically faster for repo-linked benchmark rates compared to MCLR-linked loans, which depend on banks’ costs. This means that the impact of the rate cut may be delayed for MCLR-linked loans, but HDFC Bank’s reduction in MCLR suggests that it is passing on the benefit of lower costs to its customers.