HDFC bank on Wednesday increased the marginal cost of funds-based lending rates (MCLR) by 10 basis points to 8.20%. This is the fifth consecutive hike in MCLR rates by the bank starting from April.
The bank will offer overnight rates at 7.9%. However, for one month, three months and six months, the MCLR rates will be 7.90%, 7.95% and 8.05%, respectively, the bank said on its website.
Earlier this month, privately owned lenders ICICI Bank and Karnataka Bank increased their MCLR by 10 basis points (bps) each to 8% and 9.1% respectively while public sector lender Canara Bank increased its MCLR by 10 bps to 7.75%. Banks are increasing their lending rates, both cost-based and cost of funds based, since April on account of the rising interest rate cycle and tightening of liquidity conditions by the Reserve Bank of India (RBI).
In its August meeting, the Monetary Policy Committee raised the repo rate by 50 bps to 5.40%, which is the third consecutive increase to curb headline inflation, which remains above its upper tolerance limit of 6%. Despite the increase in the repo rate and subsequent lending rates by banks, the overall credit growth in the banking industry remains robust.
Banks’ loan growth stood at 15.8% on a year-on-year (y-o-y) basis as of the fortnight ended August 12, according to the RBI data. The banking sector credit growth has sustained over 15% for two consecutive fortnights and has improved from 10% growth from June onwards. In the three months that ended June 30, the credit growth rate stood at 14.2% y-o-y. Although personal loans remain robust, loans to the industry are witnessing an improvement as well.
State Bank of India (SBI) expects the credit growth to continue and there is good demand from the retail and SME segments as the bank has not seen signs of demand tapering off, global brokerage Nomura said in a report. The bank is also expecting demand for corporate loans to improve on higher capacity utilisation by the manufacturers.
“Capacity utilisation in the economy is at about 75%, and we have got a situation where we expect more corporates to be looking at us for availing credit facilities as compared to options available in the past for raising funds from the securities market,” said Dinesh Khara, chairman of SBI, after the Q1FY23 results.
Major infrastructure development plans that have been in place by the government will have a strong multiplier effect and will likely spur demand for infrastructure financing, a recent report by the Federation of Indian Chambers of Commerce & Industry (Ficci) and Indian Banks’ Association (IBA) said.
“General loan growth across the sectors for ICICI Bank and peer banks have held up quite well, although rates have started moving up from late May. There seems to be a fair degree of resilience in demand in typical segments in which banks like ICICI Bank operate,” said Anindya Banerjee, chief financial officer of ICICI Bank in an analyst call.
However, bankers have a divided opinion about the sustainability of the loan growth which the banking sector is witnessing. In a survey of 25 banks by Ficci and IBA, 48% expect non-food credit growth to be above 10%, 24% expect growth to be in the range of 8-10% and the remaining 28% expect it to be below 8%.