HDFC Bank has reduced its Marginal Cost of Funds-based Lending Rate (MCLR) by 5 basis points across most loan tenures, with the revised rates effective from August 7, 2026. According to reports from The Economic Times, the bank has lowered rates for six of its seven listed tenures, while leaving the two-year MCLR unchanged. The reduction ranges from 0.05 percentage point across affected tenures, with the bank's MCLR now ranging from 8% to 8.65% depending on the reset tenor. As per The Economic Times, the bank has brought the overnight and one-month rates down to 8.00%, the three-month rate to 8.15%, the six-month rate to 8.30% and the benchmark one-year MCLR to 8.40%. The three-year MCLR was cut to 8.65%, while the two-year tenor remained unchanged at 8.55%. The move stands out as one of the first large lenders to pass on the benefit of lower funding costs to borrowers, according to The Economic Times.
Bank of Baroda has announced a 10-basis-point increase in its three-month MCLR, with the revised rate taking effect from August 12, 2026, as reported by Zee News. BoB will raise the three-month MCLR to 8.30%, while its overnight, one-month, six-month and one-year MCLR rates will remain at 7.85%, 7.95%, 8.50% and 8.75% respectively. Canara Bank has increased its MCLR on select tenures by 5 bps, with the one-month MCLR rising from 8.00% to 8.05%, the three-month MCLR jumping to 8.30% from 8.25%, and the six-month MCLR moving up from 8.60% to 8.65%. The one-year, two-year, and three-year MCLRs also saw increases to 8.80%, 9.05%, and 9.10% respectively, while the overnight MCLR remains unchanged at 7.95%. This contrasts sharply with HDFC Bank's decision to reduce rates, highlighting the varying approaches among major lenders. The MCLR is the internal benchmark for lenders to price loans, and banks adjust these rates monthly based on changes in marginal cost of funds. To be sure, the Reserve Bank of India (RBI) last week kept its policy repo rate unchanged at 5.25%, with loans benchmarked against the policy rate being instantly repriced while banks change MCLR every month based on change in marginal cost.
Analysts attribute HDFC Bank's MCLR reduction to a combination of easing deposit costs, repricing of the deposit book and strong inflows into foreign currency non-resident (FCNR(B)) deposits, as reported by The Hindu BusinessLine. The country's largest private lender mobilised about $1.4 billion through FCNR(B) deposits as of July-end, significantly higher than Bank of India's $207 million, highlighting HDFC Bank's stronger ability to tap lower-cost overseas funds. These inflows have helped ease the overall cost of deposits, creating room for banks to revisit lending benchmarks. Siddharth Rajpurohit, lead banking analyst at Systematix Institutional Equities, noted that banks are also getting strong FCNR (B) flows which are at relatively at lower rates than domestic term deposits, helping bring down the overall cost of funds. The move stands in sharp contrast to Bank of India, which last week raised its one-year MCLR to 8.80% from 8.75% and the three-month MCLR to 8.35% from 8.25%, effective August 1. State Bank of India has kept rates unchanged since June, with its one-year MCLR remaining at 8.70%. An increase in the MCLR does not always reflect an increase in the repo rate; it can also result from a bank's internal cost of raising funds, as noted by Zee News.
The impact of MCLR changes varies significantly based on loan structure, as reported by Business Standard. For borrowers with older loans linked to MCLR, the benchmark has moved from 8.45% to 8.40% for one-year loans, but their actual lending rate depends on the spread charged by the bank. The loan interest rate equals benchmark rate plus spread, subject to the loan agreement terms. However, most new retail floating-rate loans are now tied to external benchmarks rather than MCLR, according to Business Standard reports. The Reserve Bank of India moved new floating-rate personal and retail loans to an external benchmark framework from October 2019, allowing banks to use benchmarks such as the RBI repo rate or specified Treasury bill rates. For external benchmark-linked loans, the interest rate movement is primarily determined by changes in the underlying benchmark and the spread specified in the loan agreement, with RBI mandating reset at least once every three months. As per Business Standard, a 5-basis-point reduction in MCLR may not result in exactly the same reduction in the interest rate you are paying due to the spread added by banks. Borrowers with fixe-rate loans would not experience a rise in the EMIs, as noted by Zee News.
MCLR-linked loans do not necessarily reprice immediately when banks change their MCLR rates, as explained in Business Standard reports. RBI rules require MCLR-linked floating-rate loans to have a reset period of one year or less, meaning two HDFC Bank borrowers with similar loans could see the benefit at different times depending on their respective reset dates. As per Business Standard, a borrower whose reset date is approaching could see the revised benchmark applied sooner, while another customer may have to wait until their next scheduled reset. Borrowers should check their benchmark applicable to their loan, spread charged over that benchmark, and next reset date to determine actual impact. The RBI has mandated that external benchmark-linked loans be reset at least once every three months, making the timing of rate changes crucial for borrowers. For example, consider two borrowers who took similar HDFC Bank loans - one may have a reset date coming up next month, while the other's reset date could be several months away. An increase in the MCLR does not always reflect an increase in the repo rate; it can also result from a bank's internal cost of raising funds, as noted by Zee News.
HDFC Bank's rate reduction comes as part of broader banking sector adjustments, with The Hindu BusinessLine reporting that the move stands in sharp contrast to Bank of India's decision to raise rates and State Bank of India's decision to keep rates unchanged. HDFC's revised rates for overnight, one-month, three-month, six-month, one-year and three-year MCLR stood at 8%, 8%, 8.15%, 8.30%, 8.40% and 8.65% respectively, while Bank of India raised the one-year MCLR to 8.80% from 8.75% and the three-month MCLR to 8.35% from 8.25%, effective August 1. Siddharth Rajpurohit from Systematix Institutional Equities noted that competition in corporate lending could also have played a role, with HDFC Bank likely responding to the lower MCLR offered by private-sector peers such as ICICI Bank. The banks are adjusting their marginal cost of funds based lending rates in response to changing market conditions and funding dynamics. The decision impacts borrowers with loans linked to the increased MCLR, as noted by Zee News, with 1 bps equals 0.01%—which may look small—but exerts a significant influence on long-term loans.
