Watch out! Some big banks are reducing FD rates and increasing loan rates

The increase in HDFC Bank's MCLR comes even as the RBI kept policy repo rate unchanged at 6.50 per cent for the fourth time in a row last week.

HDFC Bank has increased the benchmark marginal cost of funds-based lending rates (MCLR) by up to 10 basis points on select  tenures effective from October 7, 2023. The bank has also hiked base rate by 5 bps and benchmark PLR by 15 bps. These rates are effective from September 25, 2023.

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.

 MCLR works as a benchmark or lower limit of lending rates.  From October 1, 2019, all  have to lend only at an interest rate linked to an external benchmark such as RBI's repo rate or Treasury Bill yield.

The increase in the MCLR comes even as the RBI kept policy repo rate unchanged at 6.50 per cent for the fourth time in a row last week.

HDFC Bank offers loans between 8.55 per cent from 9.25 per cent. 

The over night MCLR is raised by 10 bps from 8.50 pre cent to 8.60 per cent. The one-month MCLR of HDFC Bank has increased by 10 bps to 8.65per cent from 8.55 per cent. The three-month MCLR will be at 8.85 per cent, up by 5 basis points from the previous 8.80per cent. The six-month MCLR, however, was only increased to 9.10 from 9.05 per cent. 

The three-month MCLR will be at 8.85 per cent, up by 5 basis points from the previous 8.80 per cent. The six-month MCLR, however, was only increased to 9.10 from 9.05 per cent. The one-year MCLR, which is linked to many consumer loans, was hiked by 5 bps to 9.20 per cent from 9.15 per cent.   The two-year MCLR will be 9.20%, and the three-year MCLR will be 9.25%.

The bank has also  reduced fixed deposit interest rates on select tenures. 

HDFC Bank is offering an interest rate ranging from 3% to 7.20 % to general customers on deposits maturing in 7 days to 10 years. Senior citizens will earn an interest rate of 3.5% to 7.75% on these deposits. These rates are effective from 1 October 2023. The bank has reduced the tenure on FD of  55 months by 5 bps. Now these deposits are fetching a 7.20% interest rate.

Private lender Yes Bank has also cut the fixed deposit interest rate on selected tenure for deposits below Rs 2 crore. The bank has reduced FD rates by up to 25 basis points (bps) on some tenures. After the latest revision, the bank offers interest rates between 3.25% to 7.25% to general citizens, and 3.75% to 8% to senior citizens on FDs maturing in seven days to ten years. The revised FD rates have been effective from October 4, 2023.

Yes Bank will now pay a 7.25% rate on FDs maturing in one year to less than 18 months, and  7.50% on FDs maturing in 18 months to less than 36 months.

While Bank of Baroda has lowered the interest rate on Baroda Tiranga Plus Deposit Schemes, it has hiked FD rates on certain tenures by up to 50 bps. Following the revision, Bank of Baroda now provides general public interest rates of up to 7.25 percent, according to the bank's website. The new interest rates on fixed deposits will take effect on October 9, 2023.

On special deposit of Baroda Tiranga Plus Deposit Scheme with 399 days tenure, the bank reduced FD interest rate by 10 bps from 7.25% to 7.15%.

The bank will offer a highest interest rate of 7.25 per cent on FD tenures of above two years and up to three years from 7.05%, an hike of 20 bps.

What should your investment strategy be now?

In the backdrop of the Reserve Bank of India's resolute stance, maintaining the repo rate at 6.5%, Anita Gandhi, Director, Arihant Capital Markets has the following advice:

1. Diversifying investments.

2. Mainly focus on fixed-income instruments.

3. Emphasizing government and corporate bonds.

"Allocating a significant portion to sectors like healthcare, utilities, and dividend-yielding equities can bolster stability within the portfolio. Real Estate Investment Trusts (REITs) present a compelling avenue for judicious investment, offering a balance of returns and consistency. Regular investment portfolio reviews are essential to navigate this consistent interest rate environment successfully," said Gandhi.

"Given the RBI's decision to maintain the repo rate at 6.5%, savvy investors may diversify across fixed-income instruments, emphasizing government and corporate bonds while prioritizing defensive sectors such as healthcare, utilities, or consumer goods that tend to perform relatively well, irrespective of economic conditions. For stability, one can also consider judicious investments in Real Estate Investment Trusts (REITs). Regular portfolio reviews, leveraging technology for market insights, and exploring tax-advantaged options are vital elements for maximizing returns amidst this era of steady interest rates," said Chakrivardhan Kuppula, Cofounder and Executive Director, Prime Wealth Finserv Pvt Ltd