The country's largest lender, State Bank of India (SBI), raised its MCLRs by a uniform 10 bps across tenors last week.
While a slew of banks have already upped their lending rates, even before the central bank hiked the repo rate on Wednesday, those that haven’t done so are likely to raise their marginal cost of funds based lending rates (MCLRs) by at least 5-10 bps immediately, bankers have said. The Reserve Bank of India (RBI) on Wednesday raised the key repo rate by 25 basis points (bps) to 6.25%.
“There might not be room for another round of increase for those who have recently hiked rates and they may not increase their rates immediately, but the others likely to consider it soon,” said Dinabandhu Mohapatra, managing director and chief executive officer, Bank of India. Bank of India and some of the private sector lenders, including HDFC Bank and Axis Bank, had left their rates unchanged, while some of the other large banks had increased their interest rates over the past few days.
The country’s largest lender, State Bank of India (SBI), raised its MCLRs by a uniform 10 bps across tenors last week. Its one-year MCLR now stands at 8.25%. It had also increased its interest rates on fixed deposits by 5-25 bps. ICICI Bank raised its one-year MCLR by 10 bps to 8.4% as did Union Bank, where the one-year MCLR now stands at 8.45%. Punjab National Bank (PNB) raised its MCLRs by 5-10 bps, with the one-year MCLR rising to 8.40% from 8.30% earlier.
These banks are likely to wait for further signals from the RBI and are expected to hold their interest rates steady in the short-term. “The policy was very balanced, with signals that RBI will not be aggressive in raising rates in the future. Also, there are many measures that will help provide relief to banks and help in not raising interest rates sharply, thereby maintaining the flow of retail loans to consumers.
In particular, the higher housing loan limits for priority sector lending eligibility is expected to boost loans for affordable housing,” Shikha Sharma, managing director and chief executive officer, Axis Bank, said.
“There is surplus liquidity in the system. It will be some time before the hike in repo rate is transmitted to the lending and deposit rates,” PK Gupta, managing director, SBI, told a business news channel after the policy decision was announced. Though the RBI increased its repo rate due to concerns over retail inflation, it has maintained its neutral stance. Banks have been increasing lending rates since January, with Axis Bank leading the way. In the subsequent months, SBI, HDFC Bank, ICICI Bank and Punjab National Bank hiked rates, in what turned out to be the first series of rate increases since the MCLR framework was put in place.
Domestic bond yields have recorded considerable hardening in the recent months, in line with global trends as well as a decline in the systemic liquidity surplus and emergence of fiscal and inflationary risks. After the policy announcement, the 10-year benchmark bond yield closed at 7.92%, eight bps higher from the previous close, and the highest since May 2015.