Interest rates up: HDFC Bank raises MCLR by 5 bps across tenors

Updated: January 8, 2019 9:09:30 AM

HDFC Bank on Monday hiked its marginal cost of funds-based lending rate (MCLR) to 8.75%, 8.90% and 9.05% for the one-, two- and three-year tenors, respectively, led by a fall in its current account savings account (CASA) ratio.

HDFC Bank raises MCLR by 5 bps across tenors (File)

Shashank Nayar  

HDFC Bank on Monday hiked its marginal cost of funds-based lending rate (MCLR) to 8.75%, 8.90% and 9.05% for the one-, two- and three-year tenors, respectively, led by a fall in its current account savings account (CASA) ratio. The hike for all the buckets was 5 basis points (bps). State Bank of India’s one -year MCLR is 8.5% while ICICI Bank’s one-year MCLR is 8.8%. HDFC Bank has been raising loan rates over the past four months. The bank had hiked its one-, three- and six-month MCLR on December 7 by 5 bps.

Meanwhile, the yield on the benchmark bond closed at 7.51% on Monday, up 6 bps over Friday. The benchmark 10-year bond yield fell 67 bps over the past four months.

The private sector bank’s advances aggregated approximately Rs 7.8 lakh crore as on December 31, a 23.8% increase year-on-year. Deposits grew by 22% year-on-year to `8.5 lakh crore as on December 31.

Industry experts have been pointing out that banks’ spreads on loans over deposits have expanded to a two-year high at approximately 340 basis points led by an improvement in the CASA ratio. Nonetheless, the past four-five months have seen an increase in the MCLR rates leading to a hike in the deposit rates as well, data from RBI showed.

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HDFC Bank’s CASA ratio — ratio of deposits in current and saving accounts to total deposits — stood at 41% at the end of December 2018, a shade lower than the 43.9% as of December 31, 2017. A higher CASA ratio helps banks as current and savings accounts pay lower interest rates. HDFC Bank’s cost of funds has declined over two years to 4.82% for Q2FY19 from 5.91% in 2016. The bank’s one-year deposit rate stands at 7.3% compared to one-year MCLR of 8.75%, placing the spread at 1.45%.

“As higher-cost deposits transmit to higher MCLR, we expect the impact on the overall cost base to fall, offset by higher yields on the larger asset base,” Jefferies noted.

ICICI Bank, India’s second-largest private sector bank, on December 1, 2018, had hiked short-term MCLR rates by 10 bps to 8.55%, 8.6% and 8.75% for its one-, three- and six-month tenures, respectively, it left rates unchanged across tenures as on January 1.

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