First time under MCLR regime; move was widely expected on hardening bond yields
Three of the country’s largest banks, State Bank of India (SBI), ICICI Bank (ICICI) and Punjab National Bank (PNB), on Thursday raised their marginal cost of funds-based lending rates (MCLRs) in a widely anticipated move.The one-year MCLR at SBI was raised by 20 basis points (bps) to 8.15%, at ICICI by 10 bps to 8.3% and at PNB by 15 bps to 8.3%. In the past few months, large lenders like HDFC Bank and Axis Bank have raised their MCLRs (HDFC on February 7 and Axis on January 16 and February 17, respectively), in what has been the first series of hikes in lending rates ever since the MCLR framework came into effect in April 2016. SBI and PNB are the first among public-sector banks (PSBs) to raise loan rates in this round of hikes. SBI saw its MCLR rate trend down from 8.9% in April 2016 to 7.95%, where it remained till last month.
Karthik Srinivasan, senior vice-president, Icra, said, “While the data on the share of base rate-linked loans is not readily available, my guess is about 25-30% of the credit is still linked to base rate,” he said. What this implies is that a significant proportion of corporate loans and a fair chunk of retail loans may be impacted by the increase in MCLR rates.
SBI had signalled a rate
“Fixed income markets are telling us that we have fallen behind the curve,” he said. Analysts say that as most large borrowers have migrated to the MCLR framework and liquidity has tightened, banks will have better pricing power. In a recent note, investment bank Nomura wrote, “An incrementally large part of corporate lending was to ‘A’ and above rated corporates and with ample liquidity, pricing of loans to better-rated corporates was very competitive in the past 12-18 months. With lower liquidity and a spike in wholesale yields, the incremental pricing of well-rated corporates has also improved.”