After the RBI raised the repo rate on September 30, several lenders, including SB, Bol, and HDFC, increased their lending rates. To guarantee that the loan is repaid in the predicted time frame, borrowers of home loans should prepay.
Following the Reserve Bank of India’s (kn) 50 basis point (bps) hike in the repo rate on September 30, retail consumers are starting to feel the heat of increased equivalent monthly installments (EMIs). A bps is a fraction of a percentage point.
Following the RBI’s rate increase, several lenders, including the State Bank of India (SBI), Bank of India (Bol), and HDFC, increased their external benchmark lending rate (EBLR). The repo rate, or the interest rate at which the RBI lends money to banks, is currently 5.90 percent. Given the possibility that bank lending rates would continue to rise, consumers’ EMIs are likely to increase further in the upcoming months, experts and analysts told Money control on October 3.
The MCLR, repo, base rate, and government securities are just a few examples of the benchmark-linked lending rates that banks offer (marginal cost of fund-based lending rate). In light of modifications to the underlying benchmark, banks raise their lending rates. The lending rates increase gradually and take into account the cost of money “Aditya Acharekar, Associate Director of the credit rating company CareEdge, said.
There was a possibility of another increase, Acharekar continued, because the RBI had abandoned its accommodative position and was now focused on reducing inflation against the backdrop of global events.
Throughout FY23, the repo rate. As a result, loan rates are anticipated to increase further since banks will pass on the increase as much as possible to preserve their margins.
How do lending rates compare?
Following the rate rise in September, SBI, the biggest lender in the country, raised both its EBLR and repo-linked lending rate (RLLR) by 50 basis points each, bringing them to 8.55 percent and 8.15 percent, respectively. The RLLR of state-owned Bol also increased to 8.75 percent. Peers in the private sector, including ICICI Bank, increased the EBLR following the 50 basis point rate increase. Banks weren’t the only ones to increase lending rates as of October 1; mortgage lender HDFC also did it by 50 basis points.
The banking system receives rate cues from the RBI when lenders change their lending and deposit rates in response to rate decisions made by the central bank. For instance, if the RBI increases the repo rate, banks will have to pay more to borrow short-term cash from the RBI. Customers are charged more for loans as a result of this added expense. Thus, there is less need for money.
The Monetary Policy Committee (MPC) of the RBI has increased interest rates by 190 basis points (bps) since May to fight inflationary pressures in the economy. At its next policy meeting in December, economists anticipate that the MPC will increase the repo rate further. Since EBLR-linked loans transmit rate fluctuations more quickly, lending rates will continue to rise at the portfolio level, according to Jindal Haria, director at fodia Ratings. MCLR takes time and is typically more dependent on deposit rates, which would likewise progressively increase throughout the rest of the year.
Increased deposit mobilization
Banks are anticipated to raise money from the market and mobilize deposits to finance the expansion of credit, according to experts. Following the RBI rate hike, lenders including Axis Bank, DCB Bank, ICICI Bank, and RBL Bank have already raised the fixed deposit (FD) rates. In his post-policy briefing, RBI Governor Shaktikanta Das predicted that there would be more support for future deposit rate adjustments.
Deposit competition would increase, and there might be a rise in the use of wholesale financing. This may be seen in bulk deposits (above Rs 2 crore), where rates are currently significantly higher than deposit rates for smaller sums according to Haria of India rating Analysts predicted that in the future, the increase in deposit rates would probably occur more gradually than the increase in lending rates to preserve profits. That might not apply to minor financing hanks. According to a September 9 Moneycontrol article, small finance banks may experience margin pressure as a result of the rise in their deposit rates being higher than their lending rates.