HDFC Bank, the country’s largest private-sector lender by assets, raised its marginal cost of funds-based lending rates (MCLRs) by 20 basis points (bps) across tenures. Its one-year MCLR now stands at 8.6%.
MCLRs for other tenures range between 8.25% and 8.9%. The revised rates came into effect on Friday.
The bank follows State Bank of India (SBI), ICICI Bank and Bank of Baroda (BoB) in hiking lending rates. Earlier this week, SBI, the country’s largest lender by assets, had raised its one-year MCLR by 20 bps for the month of September. The one-year MCLR at SBI now stands at 8.45%. ICICI Bank raised the corresponding rate by 15 bps to 8.55%, which is the same as BoB’s one-year MCLR. BoB increased the rate by 5 bps.
Experts say the aggressive rate hikes by banks indicate the impact of a rise in their cost of funds as well as the continuing impact of bad loans sitting in banks’ books. Earlier, rate increases by banks had been gradual and that might be changing now.
The lending rate hikes correspond with the yield on the benchmark 10-year government bond breaching the 8% mark. Banks may also be expecting another hike in the repo rate in 2018 and are, therefore, passing on the earlier hikes to their borrowers.
In its annual report for FY18, the Reserve Bank of India (RBI) observed that transmission of rate changes has been slower during the year than in FY17. “…the transmission from the policy repo rate to deposit and lending rates on fresh rupee loans slowed down during 2017-18 in comparison with the previous year, mainly due to deceleration in deposit growth and a modest revival in credit demand,” the central bank said.