Beena Parmar Moneycontrol News
A day after deposit rate hike, State Bank of India (SBI), the country’s largest lender, on Thursday raised marginal cost-based lending rates (MCLR) by 10-25 basis points across most maturities, with immediate effect.
SBI, which accounts for more than a fifth of India’s banking assets, raised the key 1-year MCLR to 8.15 percent from 7.95 percent according to a notification on SBI website.
MCLR is closely linked to the costs banks pay on their deposits and hence a higher MCLR is an indication in the uptick in bank deposit rates.
It is the first hike in 1-year MCLR since the adoption of MCLR as the new lending rate system in April 2016.
For the two- and three-year tenure, the rates were increased to 8.25 percent (from 8.05 percent) and 8.35 percent (from 8.10 percent), respectively.
Rates on overnight and six month maturities were raised by 10 bps to 7.80 percent and 8.00 percent.
Other banks are likely to follow suit as typically, a deposit rate hike is followed by a lending rate hike. This indicates that the interest in the economy has moved up even as the Reserve Bank of India (RBI) in February kept its policy rates unchanged for the third time.
On Wednesday, SBI hiked its retail and wholesale deposit rates by 10 to 50 basis points (bps) across various maturity baskets.
Axis Bank has already hiked its benchmark marginal cost of funds based lending rate (MCLR) by 10 bps in the 3-month to 3-year buckets effective from February 17.
Deposit rates have been hiked as seen in the last couple of months by banks including Punjab National Bank and Karnataka Bank as banking sector liquidity has dried up.
Additionally, even as RBI has kept key policy rate unchanged, rate cycle has moved north and amid bond yields rising, banks are making treasury losses. At the same time are struggling to meet capital requirements as they have to set aside more provisions towards rising bad loans which could impact their profitability.
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