ICICI Bank follows PNB, Allahabad Bank; raises lending rates by 5 bps

By: | Updated: November 2, 2018 1:25 AM

ICICI Bank, the country’s second largest private-sector lender by assets, has raised its marginal cost of funds-based lending rates (MCLRs) by 5 basis points (bps) across tenures.

ICICI Bank, the country’s second largest private-sector lender by assets, has raised its marginal cost of funds-based lending rates (MCLRs) by 5 basis points (bps) across tenures.

ICICI Bank, the country’s second largest private-sector lender by assets, has raised its marginal cost of funds-based lending rates (MCLRs) by 5 basis points (bps) across tenures. Its one-year MCLR now stands at 8.70% while for other tenures they range between 8.45% and 8.60%. The revised rates came into effect on Wednesday.

The bank follows Punjab National Bank (PNB) and Allahabad Bank in hiking lending rates. Earlier this week, PNB had raised its one-year MCLR by 5 bps for the month of November. The one-year MCLR at PNB now stands at 8.50%. Allahabad Bank also raised the corresponding rate by 5 bps to 8.55%.
Among the major PSU banks, State Bank of India has kept the MCLR rates unchanged at 8.50% for the one-year tenure. Bank of Baroda and Canara Bank have also kept the rates unchanged at 8.55% and 8.70%, respectively.

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 on 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 in September and currently at 7.89%. Banks may also be expecting another hike in the repo rate in 2018 and are, therefore, passing on the earlier hikes to their borrowers.

Meanwhile, returns on fixed deposits (FDs) have also been hiked by several banks in the recent past. SBI, considered the benchmark for FD returns, is offering an interest rate of 6.85% for a period of five years. In the same category, HDFC bank is offering a return up to 7.10%, whereas ICICI and Axis Bank are offering returns up to 7.25% and 7.00%, respectively.

In its annual report for FY18, the Reserve Bank of India observed that transmission of rate changes has been slower during the year than in FY17.

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