Any change in the repo rate will change the marginal cost, and thus the MCLR.
HDFC Bank’s latest MCLRs
The RBI hiked its key lending rate to 4.40 percent with immediate effect last week. The cash reserve ratio was increased by 50 basis points by the central bank. Soon after the announcement, many banks including State Bank of India (SBI), Bank of Baroda, Axis Bank, and Kotak Mahindra Bank have all announced an increase in their MCLR rates.
The Reserve Bank of India sets an internal reference rate for banks called the marginal cost of funds-based lending rate (MCLR) (RBI). It assists banks in determining the minimum interest rate for various sorts of loans.
According to the HDFC bank website, “The Marginal Cost of the Fund-Based Lending Rate or the MCLR is the minimum interest rate a financial institution needs to charge for a specific loan. It dictates the lower limit of the interest rate for a loan. This rate limit is set in stone for borrowers unless specified otherwise by the Reserve Bank of India.”
According to the ICICI Bank website, “Effective Oct 01, 2019, the RBI introduced the external benchmarking system to replace the MCLR for Home Loans, Business Loans, and working capital loans, etc. This new lending rate system is only applicable for loans with floating interest rates and is not applicable for fixed interest loans.”