Public sector lender Union Bank of India on Wednesday increased marginal cost of funds based lending rates (MCLR) by 15 basis points (bps) to 7.90%. The new lending rates are effective October 11, as per information on the lender’s website.
The bank has set the shorter-term MCLR in the range of 7.15-7.70% while two-year and three-year MCLR is set at 8.10% and 8.25%, respectively.
Earlier this month, private sector lender ICICI Bank raised MCLR by 10 bps to 8.10%, while PSU banks, including Bank of Maharashtra, Bank of India, Punjab National Bank (PNB) and Bank of Baroda increased their cost-based lending rates.
Banks are consistently increasing their lending rates after the Reserve Bank of India (RBI) increased policy repo rate. The transmission of lending rates is more effective compared to the deposit rates, according to Bank of Baroda’s economics wing as scheduled banks have increased MCLR by 55 bps between April and September. Banks have increased deposit rates by 40 bps during the period.
Typically, banks revise their MCLR on a monthly basis as they are calculated on the basis of cost of funds. Any increase in the repo rate gets immediately reflected in the repo rate linked lending rates (RLLR). As of October 11, Union Bank of India’s external benchmark lending rates (EBLR) stands at 8.70%.
Despite rising rates, credit demand has grown across sectors at a robust rate in FY23 so far. Banks’ non-food credit grew by 16.7% on a year-on-year (y-o-y) basis while deposits grew by 9.5% y-o-y to Rs 170 trillion, as per RBI data.