Mumbai : Lending rates of banks, which have already risen due to expectations of policy tightening, could go up further due to Wednesday’s repo rate hike as well as sustained credit demand.
The Reserve Bank of India on Wednesday raised the repo rate by 25 basis points to 6.50 per cent, a second straight hike after the 25-bps increase in June.
This increase in repo rates will increase the bank’s cost of funds, which might force them to hike their MCLR.
Barely two days before the RBI policy, State Bank of India (SBI) had increased rates on its retail term deposits maturing in one year or more by 5-10 bps. Marginal cost of funds-based lending rates for banks have risen by 5-20 bps in the last two months, tracking the nearly 20-bps hike in deposits rates, especially on retail term liabilities.
Loan rates could increase gradually across banks because credit demand is strong and more durable, RBL Bank Executive Director Rajeev Ahuja said.
“The increase will depend on the liquidity conditions but it won’t be more than 25-30 bps spread across three to four months. I think banks will continue to be aggressive in mobilising deposits to fund credit growth,” Ahuja said. Adhil Shetty, CEO, BankBazaar.com said: “In June, several leading banks including SBI had increased their MCLR. With the rate hike, we’ll see loans get costlier.” For example, on a loan of Rs. 1 lakh for 20 years at an interest rate of 8.5 per cent, the EMI is Rs 868. If the rate rises to 8.75 per cent, the EMI increases to 884. If the interest rate reaches 9 per cent, the EMI becomes Rs 900.
“In a rising rate scenario, it makes immense sense for customers repaying loans to make periodic principal pre-payments. This is especially helpful while you’re in the first half of your loan tenure. Pre-payments made in the first half have immense impact in reducing your long-term interest outgo and thus ensuring savings,” Shetty said.
After being in single digits for most part of 2017, credit growth in the banking system has picked up in recent months.
Currency wars to hurt growth
MUMBAI: The RBI on Wednesday said that the possibility of global protectionist measures culminating into currency wars can hamper India’s growth prospects. “We already had a few months of turbulence behind us and it looks like that this is likely to continue for how long I don’t know. But the trade skirmishes evolved into tariff wars and now we are possibly at the beginning of currency wars,” RBI Governor Urjit Patel said.
IO of banks to get more power
MUMBAI: RBI has decided to strengthen grievance redressal mechanism of banks by giving more autonomy to Internal Ombudsman (IO), appointed by banks to resolve customer complaints. “Revised instructions in this regard will be issued by the end of September 2018,” RBI said. With a view to strengthening the internal grievance redressal mechanism at banks, select banks were advised in May 2015 to appoint IO as the apex authority for redressal of customer complaints, it said.
Markets trip, bank, auto stocks drag
MUMBAI: Benchmark Sensex snapped its seven-session record setting spree today after the RBI hiked the policy rate on inflation concerns but maintained its ‘neutral’ stance. The 30-share BSE Sensex shed almost 85 points to finish at 37,521.62, while the broader NSE Nifty slipped 10.30 points to 11,346.20. Interest rate sensitive auto, finance and banking stocks finished with losses. Profit booking at prevailing higher levels and lower manufacturing PMI for July added to the selling pressure, brokers said.