Banks follow RBI’s lead, begin hiking lending rates

Some big lenders including SBI, ICICI Bank and HDFC Bank had increased their Marginal Cost of Funds Based Lending Rates (MCLR) in anticipation of RBI raising repo rate, at which it lends money to banks.

In its second bi-monthly monetary policy of the current fiscal, the Reserve Bank of India on Wednesday hiked the key shortterm lending rate by 0.25 per cent after a gap of about four and half years. The current repo rate stands at 6.25 per cent. 

Joining big banks, Indian Bank and Karur Vysya Bank informed the stock exchanges about hiking the MCLR by up to 10 basis points for different tenures. State-owned Indian Bank has raised its MCLR by 10 basis points for loans with tenure of 3 months to 5 years. 

Karur Vysya Bank too has affected similar hike for loans having tenure of six months and one year. Bank of Maharashtra has indicated it will increase the lending rate. In a statement, its MD and CEO RP Marathe said that the repo rate transmission is expected to follow in terms of marginal hike in banks’ lending rates, which some of the banks have already announced. 

The central bank tweaked the retail inflation range to 4.8-4.9 per cent in the first half of 201819, and 4.7 per cent in the second half. The 6-member Monetary Policy Committee (MPC) headed by RBI Governor Urjit Patel also decided to retain projection of GDP growth for 2018-19 at 7.4 per cent, with risks evenly balanced around this number. 

“The hike in the policy rate shows RBI’s concern over spikes in retail inflation, especially food inflation, in recent months,” Bank of India’s MD and CEO Dinabandhu Mohapatra said. 

“The revision in CPI inflation projection shows RBI will remain more vigilant on retail price levels in the coming months,” he added.  According to SBI Chairman Rajnish Kumar the increase in FALLCR (Facility to Avail Liquidity for Liquidity Coverage Ratio) will provide more liquidity to banks and moderate short end interest rates. 

“Other measures like increase in threshold limits for affordable housing, encouraging continued formalization of MSME sector are in the right direction. The change in SDL valuation norms are long term positives and the spread of MTM losses over 4 quarters will provide the banks with much needed relief,” he said. 

ICICI Bank MD Chanda Kochhar said such timely action will ensure that inflation expectations remain anchored thereby aiding financial stability. Yes Bank MD and CEO Rana Kapoor said the unanimously delivered 25 basis points rate hike from MPC reflects adherence to the medium term inflation target of 4 per cent. 

“While the rate action is primarily in response to global uncertainty, especially from crude oil prices, it also signifies that the central bank is comfortable on the improving growth outlook,” Kapoor said. Future action will be driven by the trajectory of inflation, Bandhan Bank MD and CEO Chandra Shekhar  Ghosh said.