State Bank of India (SBI) on Monday hiked its marginal cost of funds lending rate (MCLR) by 5 basis points (bps) across all tenures. The lender's one-year MCLR now stands at 8.55% while those for other tenures range between 8.55% and 8.75%. The move comes after HDFC Bank on Friday hiked its short-term MCLR by 5 bps to 8.40% 8.45% and 8.55% for the one-, three- and six-month tenures, respectively. ICICI Bank had on December 1 hiked short-term MCLR rates by 10 bps to 8.55%, 8.6% and 8.75% for one-, three- and six-month tenures, respectively. According to a senior SBI executive, \u201cThe current market does not necessarily call for an MCLR hike, but since we plan to make deposit rates competitive and MCLR is based on incremental cost of funds, we had to raise it.\u201d The executive added that the primary aim of the decision is to compete with private banks as they have been hiking deposit rates lately. Industry experts have been pointing out that banks' spreads on loans over deposits have expanded to a two-year high at 3.4%, led by an improvement in the current account savings account (CASA) ratio. The past 4-5 months saw an increase in the MCLR rates, leading to a hike in deposit rates as well, data from the Reserve bank of India (RBI) showed. Headline deposits for the bank grew 20.9% year-on-year this quarter. \u201cAs 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,\u201d according to a Jefferies report. In its annual report for FY18, the RBI observed that transmission of rate changes has been slower during the year than in FY17. \u201c.the transmission from the policy repo rate to deposit and lending rates on fresh rupee loans slowed down during 2017-18 in comparison with the previous year, mainly due to deceleration in deposit growth and a modest revival in credit demand,\u201d the central bank said.