Lenders hike loan, deposit rates | The Financial Express

Lenders hike loan, deposit rates

Similar FDs with State Bank of India (SBI) and HDFC Bank currently yield 5.45% and 5.5%, respectively.

Lenders hike loan, deposit rates
While the transmission of rate hikes in the current monetary tightening cycle has been almost immediate as a result of external benchmark-linked pricing of floating-rate loans, deposit rates have been relatively slower to move.

Major lenders raised interest rates on loans and deposits on a day the Reserve Bank of India (RBI) delivered the fourth straight repo rate hike.

Housing Development Finance Corporation on Friday raised the retail prime lending rate on housing loans by 50 basis points (bps), equivalent to the September repo hike, effective October 1. ICICI Bank raised rates on retail term deposits by up to 50 bps for some maturity buckets, with effect from Friday. One-year term deposit of up to Rs 2 crore with the private bank will now earn 5.7% per annum, as against 5.5% earlier. Similar FDs with State Bank of India (SBI) and HDFC Bank currently yield 5.45% and 5.5%, respectively.

Also Read: Rate hike to have limited impact on housing sales: Developers

RBI governor Shaktikanta Das said at Friday’s post-policy press conference that he expects banks to raise deposit rates in response to the demands of credit growth. While the transmission of rate hikes in the current monetary tightening cycle has been almost immediate as a result of external benchmark-linked pricing of floating-rate loans, deposit rates have been relatively slower to move.

The government on Thursday raised rates on some small savings schemes for October-December after keeping them unchanged for nine consecutive quarters. Das mentioned the rate hikes as one of the factors that could nudge banks to pay more to depositors.

“Credit is picking up, so obviously banks need more resources for which they have to necessarily raise their deposit rates. The repo rates have been increased by 190 basis points after we started this cycle of raising interest rates. So, I think all these factors taken together, banks will increase deposit rates going forward,” he said.

Prakash Agarwal, director & head – financial institutions, India Ratings and Research, said deposit rates are likely to increase faster during the rest of FY23 than in the first half amid tighter liquidity conditions. However, hikes are likely to be lagged and lower than in the repo.

Borrowers could be up for a challenge as rates steadily go up. “…loan growth, especially long-tenure ones such as mortgages which have been witnessing strong growth, could face headwinds as the increases in instalments become material,” Agarwal observed.

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