HDFC Bank has announced a reduction in its Marginal Cost of Funds-based Lending Rates (MCLR) by up to 5 basis points across select loan tenures, providing relief to borrowers whose loans are linked to this benchmark. The revised lending rates came into effect from January 7, 2026.

Revised MCLR Structure

With the latest revision, the bank's MCLR now ranges between 8.25% and 8.55%, depending on the loan tenure. The reduction will translate into lower equated monthly instalments (EMIs) for borrowers at their next reset date.

Impact on Key Loan Categories

The one-year MCLR, which serves as a crucial benchmark for home and retail loans, has been reduced to 8.40% from 8.45%. This 5 basis point reduction will particularly benefit home loan borrowers, as most retail lending products are typically linked to this tenure.

Understanding MCLR Framework

MCLR represents the minimum interest rate at which banks can lend, unless otherwise permitted by the Reserve Bank of India. Introduced in 2016, this benchmark is directly linked to a bank's marginal cost of funds and plays a crucial role in determining loan pricing across the banking sector.

Other Rate Parameters

HDFC Bank's base rate currently stands at 8.90%, effective from September 19, 2025. The bank's benchmark prime lending rate (BPLR) has been revised to 17.40% per annum from the same date.

Fixed Deposit Rates

On the deposits front, HDFC Bank is offering fixed deposit interest rates ranging from 2.75% to 6.45% for general customers and 3.25% to 6.95% for senior citizens on deposits below ₹3.00 crore, effective from December 17, 2025.

This MCLR reduction comes as a welcome relief for borrowers, particularly those with home loans and other retail credit products linked to the one-year MCLR benchmark.

HDFC Bank shares extended their decline for a fourth consecutive session on January 8, dropping as much as 1% to an intraday low of ₹942. The stock has shed nearly 4% over this period as investors await the bank's third-quarter earnings announcement scheduled for January 17.

Q3 Business Performance Shows Strong Growth

The bank reported robust business metrics for the December quarter, demonstrating sustained growth across key parameters:

Mixed Brokerage Views on Margin Outlook

Brokerages present varying perspectives on the bank's near-term margin performance. Yes Securities expects sequential loan growth in the 2.5% range, with net interest income growth likely to trail loan growth marginally. The brokerage anticipates net interest margins to soften sequentially as the decline in yields on advances outpaces the reduction in cost of deposits.

Conversely, Systematix presents a more optimistic margin picture, noting that provisional gross advances grew 2.7% quarter-on-quarter. The brokerage expects the fall in yield on advances to be fully offset by a decline in cost of deposits, potentially leading to marginally higher net interest margins sequentially.

Asset Quality and Operational Trends

Most brokerages remain positive on asset quality improvements and operational efficiency:

• Fee income growth expected to outpace loan growth
• Operating expense growth anticipated to remain below overall business growth
• Asset quality trends likely to improve sequentially
• Slippages and provisions both expected to decline quarter-on-quarter

Deposit Composition and Growth Strategy

The bank demonstrated strong deposit mobilization capabilities during Q3:

With the loan-to-deposit ratio now below 100%, Axis Securities believes the bank is positioned to accelerate growth in FY26 to align with system-wide trends. A further pickup in growth in FY27, alongside sustained deposit mobilisation, should help bring the LDR down to sub-90%.

Long-term Outlook Remains Positive

InCred Equities maintains an optimistic long-term view, expecting margins to trough at levels better than earlier anticipated. The brokerage maintains an ADD rating with a target price of ₹1,180, implying a valuation of about 2.5x FY27F core P/BV. This outlook is supported by strong management capabilities, resilient underwriting across cycles, and the bank's ability to consistently gain market share through healthy deposit growth and stable asset quality.

Despite the recent decline, HDFC Bank shares have risen approximately 12% in 2025, reflecting the market's confidence in the bank's fundamental strength and execution capabilities.