Upward movement of MCLR leads to hike in lending, deposit rates

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Mumbai | Published: November 22, 2018 3:36:55 AM

The gap in the interest rates between outstanding loans and fresh loan remained high at 70 bps, while term deposit rates remain flat over the last few months.

MCLR, lending, deposit ratesTerm deposit rates had seen strong upward movement from November 2017 to March 2018 to 6.7% — an increase of 20 basis points (bps).

Lending rates have trended up over the last four or five months. The MCLR — the minimum interest rate below which a bank cannot lend — saw an upward movement over the past four-five months leading to a hike in the lending and deposit rates, data from the Reserve Bank of India (RBI) shows. The gap in the interest rates between outstanding loans and fresh loan remained high at 70 bps, while term deposit rates remain flat over the last few months.

Term deposit rates had seen strong upward movement from November 2017 to March 2018 to 6.7% — an increase of 20 basis points (bps). Fresh lending rates for banks were flat month-on-month (MoM) in September 2018 despite a rise in MCLR rates, though the trend was different for public sector banks (PSBs) and private banks. PSBs saw an increase in weighted average lending rates to 9.5% MoM, whereas it was flat for private sector banks.

MCLR rates were however flat MoM in October 2018 for PSBs and private banks at 8.7% and 9.3% respectively. “With deposit rates broadly stable, a swift rise in MCLR rates is less likely,” said experts at Kotak Institutional Equities.

PSBs saw a steep drop in spreads to nearly 60 bps in September 2018, down 25 bps MoM, while spreads were flat at nearly 85 bps MoM for private banks. “We do see that overall yields have improved, suggesting the upward re-pricing of the back book due to increase in MCLR rates”, say experts.

 

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