Home Finance Caution! Certain major banks are lowering FD rates while raising loan rates

Caution! Certain major banks are lowering FD rates while raising loan rates

Caution! Certain major banks are lowering FD rates while raising loan rates

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

The Marginal Cost of the Fund-Based Lending Rate or the MCLR is the minimum interest rate that a financial institution needs to charge for a specific loan. It sets the lower limit for the interest rate on a loan. Unless specified otherwise by the Reserve Bank of India, this rate limit is fixed for borrowers.

MCLR acts as a benchmark or lower limit for lending rates. Starting from October 1, 2019, all lenders are required to lend at an interest rate linked to an external benchmark such as RBI’s repo rate or Treasury Bill yield.

The increase in MCLR comes despite the RBI keeping the policy repo rate unchanged at 6.50% for the fourth consecutive time last week.

HDFC Bank offers loans at interest rates ranging from 8.55% to 9.25%.

The overnight MCLR has been raised by 10 basis points from 8.50% to 8.60%. The one-month MCLR of HDFC Bank has also increased by 10 basis points to 8.65% from 8.55%. The three-month MCLR will be at 8.85%, up by 5 basis points from the previous 8.80%. However, the six-month MCLR has only been increased to 9.10% from 9.05%.

The one-year MCLR, which is linked to many consumer loans, has been raised by 5 basis points to 9.20% from 9.15%. 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 interest rates ranging from 3% to 7.20% to general customers on deposits maturing in 7 days to 10 years. Senior citizens will earn interest rates of 3.5% to 7.75% on these deposits. These rates became effective from October 1, 2023. The bank has reduced the tenure on FDs of 55 months by 5 basis points. These deposits now fetch a 7.20% interest rate.

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

Yes Bank will now pay a rate of 7.25% 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 decreased the interest rate on Baroda Tiranga Plus Deposit Schemes, it has increased FD rates on certain tenures by up to 50 basis points. Following the revision, Bank of Baroda now provides interest rates of up to 7.25% to the general public, as stated on the bank’s website. The new interest rates on fixed deposits will take effect on October 9, 2023.

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

The bank will now offer the highest interest rate of 7.25% on FD tenures above two years and up to three years, compared to 7.05%, representing an increase of 20 basis points.

“What should your investment strategy be now?”

In light of the Reserve Bank of India’s decision to maintain the repo rate at 6.5%, Anita Gandhi, Director at Arihant Capital Markets, provides the following advice:

1. Diversify investments.

2. Focus mainly on fixed-income instruments.

3. Emphasize 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 at Prime Wealth Finserv Pvt Ltd.


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