HDFC Bank has reduced its Marginal Cost of Funds-Based Lending Rate (MCLR) by 5-15 basis points across all key tenures from October 7, 2026, even as the Reserve Bank of India raised the repo rate by 25 basis points to 5.50%. The latest revision brings the overnight MCLR down to 7.80% from 7.90%, while the one-month MCLR has been reduced to 7.75% from 7.90%. The three-month MCLR has been lowered to 7.95% from 8.05%, while the six-month rate has been reduced to 8.15% from 8.25%. The one-year MCLR, an important benchmark for several loans, has been cut by 5 basis points to 8.30% from 8.35%. The two-year MCLR has been lowered to 8.40% from 8.45%, while the three-year rate has declined to 8.55% from 8.60%. The revised MCLR now ranges from 7.75% to 8.55% across different tenures, representing a significant improvement from the previous rates.
The rate cut does not mean that every HDFC Bank home loan borrower will immediately see a lower EMI. As reported by Business Standard, the impact depends mainly on the benchmark to which the loan is linked and the reset date specified in the loan agreement. MCLR-linked loans do not necessarily change every time a bank changes its benchmark, with the reset frequency governed by loan agreement terms. A 10-basis-point reduction means the interest rate falls by 0.10 percentage point, which can make a difference over large outstanding loans and long repayment periods. Borrowers whose loans are linked to external benchmarks, including the RBI repo rate, will not be directly affected by the MCLR revision as such lending rates are determined separately using applicable external benchmarks. According to Anand Rathi Institutional Equities, existing borrowers benefit only at their next reset date, while new borrowers get the lower rate immediately. The impact is now largely on corporate, MSME and older retail loans, since most new home and retail loans are linked to the repo rate rather than MCLR.
For example, a borrower with a ₹50 lakh outstanding loan linked to the one-year MCLR will not necessarily get the benefit on October 7 simply because the one-year MCLR has fallen. According to Business Standard, the borrower must also check when the loan's interest rate is due for reset. The size of the benefit will depend on the outstanding loan, remaining tenure and the spread charged by the bank. Borrowers with longer repayment periods will generally see larger cumulative savings in interest, although monthly EMI reductions may be modest. The final interest rate also depends on the spread charged by the bank and other terms of the loan. As per Anand Rathi Institutional Equities, when a retail loan borrower's reset cycle arrives, their EMI drops, making the MCLR system particularly beneficial for borrowers with longer loan tenures.
This is important because many newer retail loans are linked to external benchmarks rather than MCLR. As reported by Business Standard, the Reserve Bank of India requires banks to link floating-rate retail and MSME loans to external benchmarks, which can include the RBI repo rate and certain Treasury bill yields. If the loan is repo-linked, a change in HDFC Bank's MCLR by itself will not automatically change the borrower's interest rate. The RBI substituted the MCLR for home loans, business loans, working capital loans, etc., with the external benchmarking system on October 1st, 2019. The MCLR is the minimum rate below which banks cannot lend to their respective borrowers, and it moves with a lag to policy cuts because it reflects the bank's cost of funds, so it eases as deposit rates are repriced lower. HDFC Bank states that its external benchmark-linked rates are based on the RBI policy repo rate and government securities yields.
HDFC Bank loan customers should check four key factors before assuming their EMI will fall: the loan's benchmark (MCLR, repo rate, or other), reset date, spread charged over the benchmark, and outstanding balance and tenure. According to Business Standard, the MCLR system was introduced by the RBI in 2016 to make banks' lending rates more responsive to their funding costs. For MCLR-linked borrowers, the latest reduction is positive, but actual benefits will depend on individual loan contracts and the timing of rate resets. Loans with floating rates that are linked to the repo rate typically reset after a few months, and when the reset cycle arrives, borrowers will see the benefit of the lower MCLR rates as either a longer loan duration or lower equated monthly installments. Borrowers considering a new loan should compare the final lending rate offered to them rather than looking only at the benchmark rate, as processing charges, spread, reset frequency and other loan terms can also affect the overall cost of borrowing.
