The country's top two private lenders HDFC Bank and ICICI Bank have increased interest rates, following the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) hiked the repo rate by 50 basis points to 4.9% on Wednesday.

HDFC Bank, India's largest private bank, in an update on its website, says the MCLRs have been hiked by 35 bps across all tenors, with effect from June 7, 2022. While the overnight interest rate has been hiked to 7.50%, the one-month rate has risen to 7.55%. The three-month MCLR rates have been hiked to 7.60%, while the interest rate for six months will be 7.70%. One year, two years and three years MCLRs have risen to 7.85%, 7.95%, and 8.05%, respectively. This is the second hike in MCLR in just over a month after these rates were hiked by 25 bps on May 7, 2022, by the bank.

In the case of ICICI Bank, as per the bank's statement on June 1, 2022, and based on the revision, the overnight and one-month MCLRs have risen to 7.30%. Three months MCLR will be 7.35%; six months 7.50%; and one year 7.55%.

The change in MCLR rates of these two banks will affect their customers' monthly EMIs. From housing to vehicles and personal to other loans -- all will become more expensive now.

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. The lending interest rate is determined based on the marginal cost or incremental cost of arranging each rupee for the borrower.

ICICI Bank, in an update on its website, says the external benchmark lending rate (EBLR), a system to define lending rates that is similar to MCLR, has been hiked by 50 basis points to 8.60% per annum from June 8, 2022. All types of bank loans are either linked to MCLR or EBLR or the base rate (minimum interest rate enforced by the RBI before the emergence of the MCLR).

"RBI Policy Repo Rate effective June 8, 2022, is 4.90%. ICICI Bank External Benchmark Lending Rate" (I-EBLR) is referenced to RBI Policy Repo Rate with a mark-up over Repo Rate. I-EBLR is 8.60% p.a.p.m. effective June 8, 2022," says the private bank.

Before this, ICICI Bank had hiked I-EBLR on May 5 by 40 basis points as the RBI, in an off-cycle meeting, had increased the key repo rate by 40 bps to 4.40% on May 4.

RBI governor Shaktikanta Das-led MPC had decided to hike the repo rate by 50 basis points to 4.9% in order to contain spiralling inflation. The MPC decided to remain focused on the withdrawal of the "accommodative" policy stance.

Hikes in MCLR rates by banks will automatically make home and car loan EMIs costly. A hike was inevitable considering that inflation continues above its target zone of 6%, but we are now entering the red zone, cautions Anuj Puri, chairman of property consultancy firm ANAROCK. “Any future hikes will reflect markedly on housing sales,” Puri warns, adding that this would have some repercussions on housing uptake.

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