Major banks on Saturday raised their lending and deposit rates, a day after the Reserve Bank of India (RBI) increased the policy repo rate by 50 basis points (bps) to 5.90%.
State Bank of India has increased its external benchmark lending rate and repo-linked lending rate by 50 bps.
Private sector lender ICICI Bank raised the marginal cost of funds based lending rates (MCLR) by 10 bps to 8.10%, with shorter term lending rates in the range of 7.85-8.05%. Similarly, Bank of India and Punjab National Bank (PNB) increased the MCLR by 10 bps and 5 bps, respectively. With this, the MCLR offered by Bank of India stands at 7.80%, while that of PNB is at 7.75%.
Banks are increasing their lending rates after the RBI initiated a rising interest rate cycle to bring inflation within its mandated tolerance band. While any increase in the policy rate is reflected in the repo rate linked lending rates (RLLR), banks revise their MCLR on a monthly basis as they are calculated on the basis of cost of funds.
However, with a rising interest rate and higher credit growth cycle, banks are also increasing their deposit rates, which is ultimately reflected in their cost of funds.
State Bank of India (SBI), HDFC Bank and Kotak Mahindra Bank increased foreign currency non-resident (bank) deposit rates. SBI has raised FCNR (B) rates by 90 bps to 3.85% for one-year tenure, while Kotak Mahindra Bank and HDFC Bank FCNR (B) deposit rates are at 4.05% and 4.15%, respectively. The hike in FCNR (B) comes after the interest rate hike by the US Federal Reserve, which will also result in an increase in global deposit rates, which has resulted in Indian banks increasing FCNR (B) rates to attract more flow of foreign currency in the country. The RBI has liberalised interest rates on FCNR deposits and the window to raise such deposits is open till October 31.
Some banks have immediately increased their domestic deposit rates after the RBI policy decision. Private sector lenders Axis Bank increased domestic term deposit rates on deposits of up to Rs 5 crore and one-year maturity by 40 bps to 6.50%, but has kept deposits of up to Rs 2 crore in the same maturity bucket unchanged. Similarly, HDFC Bank is offering interest rate of 5.70% on deposits of Rs 5 crore maturing in nine months to one year. On Friday, ICICI Bank increased the rate on one-year term deposit of up to Rs 2 crore by 20 bps to 5.7% per a year.
RBI governor Shaktikanta Das on Friday said he expects banks to raise deposit rates to meet the credit growth. While the transmission of lending rate hikes in the current monetary tightening cycle has been almost immediate, deposit rates have been relatively slower to move. As a result, deposit growth is trailing the loan growth rate. As of the fortnight ended September 9, banking sector deposits grew by 9.5% y-o-y, with total outstanding at `170 trillion, while loan growth stood at 16% y-o-y.