Private sector lender Axis Bank on Tuesday increased its marginal cost of funds based lending rates (MCLR) by 25 basis points (bps). With this, the one-year lending rates offered by the bank stands at 8.35%, as per information on its website.

This is the third time the bank has made a steep increase in its MCLR since the Reserve Bank of India (RBI) first raised the policy repo rate by 40 bps in an off-cycle meeting in May. The bank had increased its MCLR by 35 bps in May and effected another 20 bps hike in the following month. The lender had raised lending rates by 5 bps in the three consecutive months.

In other brackets, Axis Bank is offering loans in the range of 8.15-8.30% for smaller maturities and 8.45-8.50% for longer maturities.

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The latest rate hike comes after the central bank raised interest rates by 50 bps in September, taking the cumulative increase to 190 bps since May. Consequently, banks are also making steeper increases in their cost-based lending rates. Earlier this month, State Bank of India (SBI) and Kotak Mahindra Bank increased their respective MCLRs by 25 bps. ICICI Bank, however, has raised lending rates by 10 bps, a comparatively smaller amount compared to the other lenders. Public sector banks including Union Bank of India, Bank of Maharashtra, Bank of India, Punjab National Bank and Bank of Baroda have also increased their lending rates.

Major banks have increased their MCLRs by 55 bps since April, while deposit rates are growing with a lag at 40 bps, Bank of Baroda said in a report. However, transmission of monetary policy takes place more effectively on loans linked to the external benchmark lending rates (EBLR), the bulk of which is linked to the repo rate. With increase in repo rate over FY23, the pace of transmission will likely be more effective, ICICI Securities said in a report. The floating rate loan outstanding of the banking system, linked to the EBLR, stands at 46.9% in June, while those linked to MCLR has come down to 46.5% during the period, compared to 48.6% as of March, the RBI said in its monthly bulletin.