HDFC Bank cuts two-year MCLR rate to 9.20% effective June 7

At the same time, the bank has also reduced Marginal Cost of Funds-based Lending Rate (MCLR) for one-month tenure to 9.95% from 9%.

A customer walks out of a HDFC Bank branch as another deposits a cheque at a counter in Mumbai, November 17, 2012. Image Source: Reuters/Vivek Prakash

Private sector HDFC Bank has cut lending rate by 0.05%, a move which will lower equated monthly installment (EMI) for its new borrowers.

The new rate for two-year lending tenure has been reduced to 9.20% from 9.25% effective June 7, as per the HDFC Bank website.

At the same time, the bank has also reduced Marginal Cost of Funds-based Lending Rate (MCLR) for one-month tenure to 9.95% from 9%.

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MCLR is the new benchmark lending rate and replaces the base rate for new borrowers. It is calculated on the marginal cost of borrowing and return on net worth for banks.

It has been introduced by the Reserve Bank of India (RBI) to ensure fair interest rates to borrowers as well as banks.

However, state-owned Bank of Baroda increased its one-year MCLR to 9.40% from 9.30% effective June 7.

The MCLR revision came soon after RBI maintained status quo on interest rate citing inflationary pressure.

On Wednesday, Reserve Bank said it will soon review the new lending regime based on marginal cost of funds that became effective from April this year.

"Transmission of policy into bank lending rates still remains work in progress. We will shortly review the operation of the marginal cost lending rate framework to iron out any issues," RBI Governor Raghuram Rajan had said.

RBI had asked banks to move to the new lending rate regime to ensure they pass on the benefits of its rate cuts to their customers at a faster pace. But even after two months, the average lending rate has come down only by 30-35 basis points.

Last week, some banks including Punjab National Bank, and ICICI Bank revised their MCLR for June by up to 0.15% for one-year tenor.

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